Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
FORM 10-K/A
Amendment No. 1
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE
FISCAL YEAR ENDED DECEMBER 31, 2008
Commission File Number No. 0-14555
VIST FINANCIAL CORP.
(Exact name of
Registrant as specified in its charter)
PENNSYLVANIA
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23-2354007
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(State or other
jurisdiction of
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(I.R.S. Employer
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incorporation or
organization)
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Identification
No.)
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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
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The
NASDAQ Stock Market LLC
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(Title of each class)
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(Name of each exchange on which registered)
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Securities registered
under Section 12(g) of the Exchange Act:
Indicate by check mark if
the registrant is a well known seasoned issuer, as defined in Rule 405 of
the Securities Act. Yes
o
No
x
Indicate by check mark if
the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of
the Act. Yes
o
No
x
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 if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
x
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.
Large
accelerated filer
o
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Accelerated
filer
x
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Non-accelerated
filer
o
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Smaller reporting
company
o
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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
As of June 30, 2008,
the aggregate market value of the voting and non-voting common stock of the
registrant held by non-affiliates computed by reference to the price at which
common stock was last sold was approximately $70.0 million.
Number of Shares of
Common Stock Outstanding at March 26, 2010:
5,855,976
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrants
definitive Proxy Statement prepared in connection with its Annual Meeting of
Stockholders to be held on April 21, 2009 are incorporated in Part III
hereof.
Table of
Contents
PART I
EXPLANATORY
NOTE
This
Amendment on Form 10-K/A amends our Annual Report on Form 10-K for
the annual period ended December 31, 2008, filed with the Securities and
Exchange Commission (SEC) on March 6, 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 annual period ended December 31, 2008
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-K
filed on March 6, 2009. The errors
discussed above do not affect periods prior to the three month period ended September 30,
2008. Accordingly, 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 Item 9A
- 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 December 31, 2008.
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 September 30, 2008 and December 31,
2008.
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 fourth quarter of 2008 that have materially
affected, or are reasonably likely to materially affect, the Companys internal
control over financial reporting.
For additional discussion, see Item 8 Financial
Statements and Supplementary Data 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 Annual Report on Form 10-K 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.
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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 financial services laws and
regulations (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 Plan 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.
Item 1. Business
The Company is a
Pennsylvania business corporation headquartered at 1240 Broadcasting Road,
Wyomissing, Pennsylvania 19610. The
Company was organized as a bank holding company on January 1, 1986. The Companys election with the Board of
Governors of the Federal Reserve System to become a financial holding company
became effective on February 7, 2002.
The Company offers a wide array of financial services through its
various subsidiaries. The Companys
executive offices are located at 1240 Broadcasting Road, Wyomissing,
Pennsylvania 19610.
The Companys common
stock is traded on the NASDAQ Global Market system under the symbol VIST.
At December 31,
2008, the Company had total assets of $1.2 billion, total shareholders equity
of $123.6 million, and total deposits of $850.6 million.
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 $25.0 million in cash (see note 16 of
the consolidated financial statements).
The issuance of the Series A Preferred Stock also carries certain
restrictions with regards to the Companys declaration and payment of cash
dividends on common stock and the redemption, purchase or acquisition any
shares of Common Stock or other capital stock or other equity securities of any
kind of the Company, or any junior subordinate debt (trust preferred
securities) issued by the Company or any affiliate of the Company.
Subsidiary
Activities
The
Bank
The Companys
wholly-owned banking subsidiary is VIST Bank (VIST Bank or the Bank), a
Pennsylvania chartered commercial bank.
During the year ended December 31, 2000, the charters of The First
National Bank of Leesport, incorporated under the laws of the United States of
America as a national bank in 1909, and Merchants Bank of Pennsylvania, both
wholly-owned banking subsidiaries of the Company at that time, were merged into
a single charter. VIST Bank operates in
Berks, Schuylkill, Philadelphia, Delaware and Montgomery counties in
Pennsylvania.
On October 1, 2004,
the Company acquired 100% of the outstanding voting shares of Madison
Bancshares Group, Ltd., the holding company for Madison Bank (Madison), a
Pennsylvania state-chartered commercial bank and its mortgage banking division,
Philadelphia Financial Mortgage Company, now known as VIST Mortgage. Madison and VIST Mortgage are both now
divisions of VIST Bank. The transaction
enhances the Banks strong presence in Pennsylvania, particularly in the high
growth counties of Berks, Philadelphia, Montgomery and Delaware.
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VIST Bank had two
wholly-owned subsidiaries as of December 31, 2008; VIST Mortgage Holdings,
LLC and VIST Realty Solutions, LLC.
VIST Mortgage Holdings,
LLC, a Pennsylvania limited liability company, provides mortgage brokerage
services, including, without limitation, any activity in which a mortgage
broker may engage. It is operated as a
permissible affiliated business arrangement within the meaning of the Real
Estate Settlement Procedures Act of 1974.
VIST Mortgage Holdings, LLC is currently inactive.
VIST Realty Solutions,
LLC, a Pennsylvania limited liability company, provides title insurance and
other real estate related services to the Companys customers through limited
partnership arrangements with unaffiliated third parties involved in the real
estate services industry. The capital contributions
of VIST Realty Solutions, LLC in connection with the formation of each of the
limited partnerships were not material.
None of the limited partnership arrangements involves the use of a
special purposes entity for financial accounting purposes or any off-balance
sheet financing technique. On October 29,
2008, VIST Realty Solutions, LLC dissolved its operations by selling its
partnership interest to the remaining limited partnerships for an amount which
approximated its initial capital contribution.
Neither the Company nor any other affiliate of the Company nor VIST
Realty Solutions, LLC has any continuing contractual financial commitment to
the limited partnerships.
Commercial and Retail Banking
VIST Bank provides
services to its customers through seventeen full service financial centers,
which operate under VIST Banks name in Leesport, Blandon, Bern Township,
Wyomissing, Breezy Corner, Hamburg, Birdsboro, Northeast Reading, Exeter
Township, and Sinking Spring all of which are in Berks County,
Pennsylvania. VIST Bank also operates a
financial center in Schuylkill Haven, which is located in Schuylkill County,
Pennsylvania. VIST Bank also operates
financial centers in Blue Bell, Conshohocken, Oaks and Centre Square all of
which are in Montgomery County, Pennsylvania.
The Bank closed its Horsham financial center in 2008. The Bank also operates a financial center in
Fox Chase (northeast Philadelphia) in Philadelphia County, Pennsylvania and
Strafford in Delaware County, Pennsylvania.
The Bank also operates a limited service facility in Wernersville, Berks
County, Pennsylvania. All full service
financial centers provide automated teller machine services. Each financial center, except the
Wernersville and Breezy Corner locations, provides drive-in facilities.
VIST Bank engages in full
service commercial and consumer banking business, including such services as
accepting deposits in the form of time, demand and savings accounts. Such time
deposits include certificates of deposit, individual retirement accounts and
Roth IRAs. The Banks savings accounts
include money market accounts, health savings accounts, club accounts, NOW
accounts and traditional regular savings accounts. In addition to accepting deposits, the Bank
makes both secured and unsecured commercial and consumer loans, finances
commercial transactions, provides equipment lease and accounts receivable
financing and makes construction and mortgage loans, including home equity
loans. The Bank also provides small
business loans and other services including rents for safe deposit facilities.
At December 31,
2008, the Company and VIST Bank had the equivalent of 293 and 194 full-time
employees, respectively.
Mortgage Banking
VIST Bank provides
mortgage banking services to its customers through VIST Mortgage. VIST Mortgage operates offices in Reading and
Blue Bell, which are located in Berks County, Pennsylvania, Schuylkill County,
Pennsylvania and Montgomery County, Pennsylvania, respectively. In 2008, VIST Mortgage closed its Camp Hill
office which was located in Cumberland County, Pennsylvania.
Insurance
VIST Insurance, LLC (VIST
Insurance), a full service insurance agency, offers a full line of personal
and commercial property and casualty insurance as well as group insurance for
businesses, employee and group benefit plans, and life insurance. VIST Insurance is headquartered in Reading,
Pennsylvania with sales offices at 108 South Fifth Street, Reading,
Pennsylvania; 460 Norristown Road, Blue Bell, Pennsylvania; and 1240 Broadcasting
Road, Wyomissing, Pennsylvania. VIST
Insurance had 64 full-time employees at December 31, 2008.
Wealth Management
VIST Capital Management
LLC, (VIST Capital), a full service investment advisory and brokerage
services company, offers a full line of products and services for individual
financial planning, retirement and estate planning, investments, corporate and
small business pension and retirement planning.
VIST Capital is headquartered at 1240 Broadcasting Road, Wyomissing,
Pennsylvania and had 7 full-time employees at December 31, 2008.
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Equity Investments
Health
Savings Accounts
- In July 2005, the Company purchased a 25% equity position in First HSA,
LLC a national health savings account (HSA) administrator. The investment formalized a relationship that
existed since 2001. This relationship
has allowed the Company to be a custodian for HSA customers throughout the
country. At December 31, 2008, the
Company has more than 29,908 accounts with approximately $56.4 million in
deposits. The HSA relationship has given
the Company a strong presence in the HSA business and will continue to benefit
the Company by raising deposits in 2009.
Junior Subordinated Debt
The Company owns First
Leesport Capital Trust I (the Trust), a Delaware statutory business trust
formed on March 9, 2000, in which the Company owns all of the common
equity. The Trust has outstanding $5
million of 10.875% fixed rate mandatory redeemable capital securities. These securities must be redeemed in March 2030,
but may be redeemed on or after March 9, 2010 or earlier in the event that
the interest expense becomes non-deductible for federal income tax purposes or
if these securities no longer qualify as Tier 1 capital for the Company. In October, 2002 the Company entered into an
interest rate swap agreement that effectively converts the securities to a
floating interest rate of six month LIBOR plus 5.25%. In June 2003, the Company purchased a
six month LIBOR cap to create protection against rising interest rates for the
interest rate swap.
On September 26,
2002, the Company established Leesport Capital Trust II, a Delaware statutory
business trust, in which the Company owns all of the common equity. 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
securities must be redeemed in September 2032, but may be redeemed on or
after November 7, 2007 or earlier in the event that the interest expense
becomes non-deductible for federal income tax purposes or if these securities
no longer qualify as Tier 1 capital for the Company. The Company opted not to redeem these capital
securities in 2008 due to unfavorable economic conditions and interest
rates. The Company will continue to
evaluate the feasibility of redeeming these capital securities. In September 2008, the Company entered
into an interest rate swap agreement that effectively converts the $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, a Connecticut statutory business
trust. Pursuant to the purchase of
Madison on October 1, 2004, the Company assumed 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
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 is no
longer qualified as Tier 1 capital for the Company. The Company opted not to
redeem these capital securities in 2008 due to unfavorable economic conditions
and interest rates. The Company will
continue to evaluate the feasibility of redeeming these capital
securities. In September 2008, the
Company entered into an interest rate swap agreement that effectively converts
the $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.
Prior to the earlier of
the third anniversary date of the issuance of the Series A Preferred Stock
issued to Treasury (December 19, 2011) or the date on which the Series A
Preferred Stock has been redeemed in whole or the Treasury has transferred all
of the Series A Preferred Stock to third parties which are not affiliates
of the Treasury, neither the Company nor any of its subsidiaries are permitted
to redeem, purchase or acquire any trust preferred securities issued by the
Company or any affiliate of the Company without the consent of the Treasury.
Competition
The Company faces
substantial competition in originating loans, in attracting deposits, and
generating fee-based income. This
competition comes principally from other banks, savings institutions, credit
unions, mortgage banking companies and, with respect to deposits, institutions
offering investment alternatives, including money market funds. Competition also comes from other insurance
agencies and direct writing insurance companies. Due to the passage of landmark banking
legislation in November 1999, competition may increasingly come from
insurance companies, large securities firms and other financial services
institutions. As a result of
consolidation in the banking industry, some of the Companys competitors and
their respective affiliates may enjoy advantages such as greater financial
resources, a wider geographic presence, a wider array of services, or more
favorable pricing alternatives and lower origination and operating costs.
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Supervision
and Regulation
General
The Company is registered
as a bank holding company, which has elected to be treated as a financial
holding company, and is subject to supervision and regulation by the Board of Governors
of the Federal Reserve System under the Bank Holding Act of 1956, as
amended. As a bank holding company, the
Companys activities and those of its bank subsidiary are limited to the
business of banking and activities closely related or incidental to
banking. Bank holding companies are
required to file periodic reports with and are subject to examination by the
Federal Reserve Board. The Federal
Reserve Board has issued regulations under the Bank Holding Company Act that
require a bank holding company to serve as a source of financial and managerial
strength to its subsidiary banks. As a
result, the Federal Reserve Board, pursuant to such regulations, may require
the Company to stand ready to use its resources to provide adequate capital
funds to its bank subsidiary during periods of financial stress or adversity.
The Bank Holding Company
Act prohibits the Company from acquiring direct or indirect control of more
than 5% of the outstanding shares of any class of voting stock, or
substantially all of the assets of any bank, or from merging or consolidating
with another bank holding company, without prior approval of the Federal
Reserve Board. Additionally, the Bank
Holding Company Act prohibits the Company from engaging in or from acquiring
ownership or control of more than 5% of the outstanding shares of any class of
voting stock of any company engaged in a non-banking business, unless such
business is determined by the Federal Reserve Board to be so closely related to
banking as to be a proper incident thereto.
The types of businesses that are permissible for bank holding companies
to own were expanded by the Gramm-Leach-Bliley Act in 1999.
As a Pennsylvania bank
holding company for purposes of the Pennsylvania Banking Code, the Company is
also subject to regulation and examination by the Pennsylvania Department of
Banking.
The Company is under the
jurisdiction of the Securities and Exchange Commission and of state securities
commissions for matters relating to the offering and sale of its securities. In addition, the Company is subject to the
Securities and Exchange Commissions rules and regulations relating to
periodic reporting, proxy solicitation, and insider trading.
Regulation
of VIST Bank
VIST Bank is a
Pennsylvania chartered commercial bank, and its deposits are insured (up to
applicable limits) by the Federal Deposit Insurance Corporation (the FDIC). The Bank is subject to regulation and
examination by the Pennsylvania Department of Banking and by the FDIC. The Community Reinvestment Act requires VIST
Bank to help meet the credit needs of the entire community where VIST Bank
operates, including low and moderate income neighborhoods. VIST Banks rating
under the Community Reinvestment Act, assigned by the FDIC pursuant to an
examination of VIST Bank, is important in determining whether the Bank may
receive approval for, or utilize certain streamlined procedures in,
applications to engage in new activities.
VIST Bank is also subject
to requirements and restrictions under federal and state law, including
requirements to maintain reserves against deposits, restrictions on the types
and amounts of loans that may be granted and the interest that may be charged
thereon, and limitations on the types of investments that may be made and the types
of services that may be offered. Various
consumer laws and regulations also affect the operations of VIST Bank. In addition to the impact of regulation,
commercial banks are affected significantly by the actions of the Federal
Reserve Board as it attempts to control the money supply and credit
availability in order to influence the economy.
Capital
Adequacy Guidelines
Bank holding companies
are required to comply with the Federal Reserve Boards risk-based capital
guidelines. The required minimum ratio
of total capital to risk-weighted assets (including certain off-balance sheet
activities, such as standby letters of credit) is 8%. At least half of the total capital is
required to be Tier 1 capital, consisting principally of common shareholders
equity, less certain intangible assets.
The remainder (Tier 2 capital) may consist of certain preferred stock,
a limited amount of subordinated debt, certain hybrid capital instruments and
other debt securities, and a limited amount of the general loan loss
allowance. The risk-based capital
guidelines are required to take adequate account of interest rate risk,
concentration of credit risk, and risks of nontraditional activities.
In addition to the
risk-based capital guidelines, the Federal Reserve Board requires a bank
holding company to maintain a leverage ratio of a minimum level of Tier 1
capital (as determined under the risk-based capital guidelines) equal to 3% of
average total consolidated assets for those bank holding companies which have
the highest regulatory examination ratings and are not contemplating or
experiencing significant growth or expansion.
All other bank holding companies are required to maintain a ratio of at
least 1% to 2% above the stated minimum.
The Pennsylvania Department of Banking requires state chartered banks to
maintain a 6% leverage capital level and 10% risk based capital, defined
substantially the same as the federal regulations. The Bank is subject to almost identical
capital requirements adopted by the FDIC.
Prompt
Corrective Action Rules
The federal banking
agencies have regulations defining the levels at which an insured institution
would be considered well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized. The applicable federal bank regulator for a
depository institution could, under certain circumstances, reclassify a well-capitalized
institution as adequately capitalized or require an adequately capitalized
or undercapitalized institution to comply with
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supervisory actions as if
it were in the next lower category. Such
a reclassification could be made if the regulatory agency determines that the
institution is in an unsafe or unsound condition (which could include
unsatisfactory examination ratings). The
Company and the Bank each satisfy the criteria to be classified as well capitalized
within the meaning of applicable regulations.
Regulatory
Restrictions on Dividends
Dividend payments made by
VIST Bank to the Company are subject to the Pennsylvania Banking Code, the
Federal Deposit Insurance Act, and the regulations of the FDIC. Under the Banking Code, no dividends may be
paid except from accumulated net earnings (generally, retained
earnings). The Federal Reserve Board and
the FDIC have formal and informal policies which provide that insured banks and
bank holding companies should generally pay dividends only out of current
operating earnings, with some exceptions.
The Prompt Corrective Action Rules, described above, further limit the
ability of banks to pay dividends if they are not classified as well
capitalized or adequately capitalized.
Under these policies and
subject to the restrictions applicable to the Bank, the Bank had approximately
$10.0 million available for payment of dividends to the Company at December 31,
2008, without prior regulatory approval.
FDIC Insurance
Assessments
In February 2006,
deposit insurance modernization legislation was enacted. Effective March 31, 2006, the law merged
the BIF Fund and the SAIF Fund into a single Deposit Insurance Fund, increased
deposit insurance coverage for IRAs to $250,000, provided for the future
increase of deposit insurance on all accounts by authorizing the FDIC to index
the coverage to the rate of inflation, authorized the FDIC to set the reserve
ratio of the combined Deposit Insurance Fund at a level between 1.15% and
1.50%, and permitted the FDIC to establish assessments to be paid by insured
banks. On October 3, 2008, in
response to the ongoing economic crisis affecting the financial services
industry, the Emergency Economic Stabilization Act of 2008 was enacted which
raised the basic limit on federal deposit insurance coverage from $100,000 to
$250,000 per depositor. This legislation
provides that the basic deposit insurance limit will return to $100,000 after December 31,
2009.
The FDIC has implemented
a risk-related premium schedule for all insured depository institutions that
results in the assessment of premiums based on capital adequacy and supervisory
measures as well as certain financial ratios.
Deposit insurance assessment rates are billed quarterly and in
arrears. The current assessment rate
calculation is valid only for Risk Category I or well-capitalized institutions
with minimum composite CAMELS ratings as of the end of the quarterly assessment
period. Only institutions with a total
capital to risk-adjusted assets ratio of 10% or greater, a Tier 1 capital to
risk-based assets ratio of 6% or greater, and a Tier 1 leverage ratio of 5% or
greater, are assigned to the well-capitalized group. As of December 31, 2008, the Bank was
well capitalized for purposes of calculating FDIC insurance assessments.
The FDICs Board of
Directors has adopted minimum and maximum assessment rates for Risk Category I
institutions of 5.0 basis points and 7.0 basis points, respectively, beginning
in 2007. Based on the FDIC assessment
rate calculation at December 31, 2008, the Banks FDIC assessment rate is
6.59 basis points. On December 16,
2008, the FDIC Board of Directors approved the final rule on deposit
insurance assessment rates for the first quarter of 2009. The rule raises assessment rates
uniformly by 7 basis points (annual rate) for the first quarter of 2009
only. Annual rates applicable to the
first quarter 2009 assessments, which would be collected at the end of June 2009,
are as follows:
Risk Category I: 12 - 14
basis points;
Risk Category II: 17
basis points;
Risk Category III: 35
basis points; and
Risk Category IV: 50
basis points.
On February 27,
2009, the FDIC Board of Directors took further action to strengthen the Deposit
Insurance Fund (DIF) by adopting an interim rule imposing a special
assessment on insured institutions of 20 basis points on June 30, 2009,
with the option of imposing an emergency special assessment after June 30,
2009 of up to 10 basis points, adopting a final rule implementing changes
to the risk-based assessment system, and setting assessment rates beginning
with the second quarter of 2009. The
ultimate goal of these FDIC actions is to restore the DIF reserve ratio to
1.15% within the next seven years. The
FDIC increased the DIF reserve ratio restoration period from five to seven
years due to recent economic pressures impacting banks and the financial
system. Based on our most recent FDIC
deposit insurance assessment base, the special assessment on insured
institutions of 20 basis points, if implemented, would increase our FDIC
deposit insurance premiums by approximately $1.6 million in 2009.
Assessment rates
beginning April 1, 2009 will increase.
Banks in the top tier risk category currently pay any where from 12
cents per $100 of deposits to 14 cents per $100 of deposits for FDIC
insurance. FDIC insurance assessment
rates for these banks will increase and will now include an initial base rate
of between 12 cents per $100 of deposits to 16 cents per $100 of deposits with
higher assessment rates for those institutions that rely significantly on
secured borrowings and brokered deposits.
The FDIC will reduce assessment rates for smaller banks, banks with high
levels of tier 1 capital and banks that hold long-term unsecured debt.
In 2008, the Bank paid
$493,600 in FDIC deposit insurance premiums, however, it is subject to
assessments to pay the interest on Financing Corporation (FICO) bonds. The Financing Corporation was created by
Congress to issue bonds to finance the
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resolution of failed
thrift institutions. Prior to 1997, only
thrift institutions were subject to assessments to raise funds to pay the FICO
bonds. Beginning in 2000, commercial
banks and thrifts are subject to the same assessment for FICO bonds. The FDIC sets the Financing Corporation assessment
rate every quarter. The current FICO
bond assessment for the Bank is $.0114, annualized, for each $100 of
deposits. The deposit insurance
modernization legislation does not affect the authority of the Financing
Corporation to collect these assessments.
FDIC
Temporary Liquidity Guarantee Program
On October 14, 2008,
the FDIC announced the Temporary Liquidity Guarantee Program (TLG Program) to
strengthen confidence and encourage liquidity in the banking system. The TLG Program consists of two components: a
temporary guarantee of newly issued senior unsecured debt (the Debt Guarantee
Program) and a temporary unlimited guarantee of funds in noninterest-bearing
transaction accounts at FDIC-insured institutions (the Transaction Account
Guarantee Program).
The TLG Program became
effective on October 14, 2008. All
eligible entities were covered under the TLG Program for the first 30 days of
the TLG Program. No later than December 5,
2008, each eligible entity mandatory informed the FDIC of its desired to opt
out of the Debt Guarantee Program or the Transaction Account Guarantee Program,
or both. The decision to opt out is
irrevocable. Failure to opt out of
either component by December 5, 2008, constituted an irrevocable decision
to continue participation in that component.
For each component, a U.S. Bank Holding Company and all of its
affiliates that are eligible entities must have made the same election
regarding participation. Similarly, for
each component, a U.S. Savings and Loan Holding Company and all of its
affiliates that are eligible entities must have made the same election
regarding participation. For example, if
one member of a holding company group opted out with respect to the Debt
Guarantee Program, then all eligible entities within the same group are also
deemed to have opted out. Entities that
opted out were subject to certain disclosure requirements, as specified in Part 370
of the FDICs regulations.
No entity was charged for
the first 30 days of the TLG Program.
Any eligible entity that opted out of the Program on or before December 5,
2008, did not pay any assessment under the Program. Any eligible entity that did not opt out on
or before December 5, 2008, was required to pay assessments retroactive to
November 13, 2008. The assessments
associated with the TLG Program, as outlined in the Final Rule, are as follows:
All new issued senior
unsecured debt as defined in the regulation was charged an annualized
assessment of up to 100 basis points (depending on debt term) multiplied by the
amount of debt issued, and calculated through the date of that debt or June 30,
2012, whichever is earlier.
Holding companies and
other non-insured depository institutions in a holding company structure may be
assessed an additional 10 basis points under certain circumstances, as
described in the Final Rule.
Amounts exceeding the
existing deposit insurance limit of $250,000 in any noninterest-bearing
transaction accounts as defined in the regulation will be assessed an
annualized 10 basis points collected quarterly for coverage through December 31,
2009.
Any eligible entity that
did not opt out of the Debt Guarantee Program notified the FDIC of the amount
of outstanding senior unsecured debt as of September 30, 2008 that is
scheduled to mature on or before June 30, 2009, for purposes of
determining the maximum guaranteed amount under this component.
The Company and the Bank
are participating in the Debt Guarantee Program and the Transaction Account
Guarantee Program. For both the Company
and the Bank, the total amount of outstanding senior unsecured debt as defined
in the regulation as of September 30, 2008, that is scheduled to mature on
or before June 30, 2009, was $0.
If a participating entity
wanted to have the option of issuing certain non-guaranteed senior unsecured
debt before issuing the maximum amount of guaranteed debt, it could have
elected to do so. Election of this
option requires a participating entity to pay an upfront nonrefundable fee in
exchange for which it will be able to issue, at any time and without regard to
the cap, non-guaranteed senior unsecured debt with a maturity date after June 30,
2012. The nonrefundable fee would be
equal to 37.5 basis points of the par or face value of senior unsecured debt,
excluding debt extended to affiliates or institution affiliated parties,
outstanding as of September 30, 2008, that is scheduled to mature on or
before June 30, 2009. An entity
electing the nonrefundable fee option will be billed as it issues guaranteed
debt under the Debt Guarantee Program, and the amounts paid as a nonrefundable
fee will offset these bills until the nonrefundable fee is exhausted. Thereafter, the institution must pay an
additional assessment for guaranteed debt as it issues the debt. Both the Company and the Bank declined the
option of issuing certain non-guaranteed senior unsecured debt before issuing
the maximum amount of guaranteed debt.
Federal Home Loan Bank System
The Bank is a member of
the Federal Home Loan Bank of Pittsburgh (the FHLB), which is one of 12
regional Federal Home Loan Banks. Each
Federal Home Loan Bank serves as a reserve or central bank for its members
within its assigned region. It is funded
primarily from funds deposited by member institutions and proceeds from the
sale of consolidated obligations of the Federal
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Home Loan Bank
System. It makes loans to members (i.e.,
advances) in accordance with policies and procedures established by the board
of directors of the Federal Home Loan Bank.
At December 31, 2008, the Bank had $53.4 million in short-term FHLB
advances outstanding and $50.0 million in longer-term FHLB advances
outstanding.
As a member, the Bank is
required to purchase and maintain stock in the FHLB in an amount equal to the
greater of 1% of its aggregate unpaid residential mortgage loans, home purchase
contracts or similar obligations at the beginning of each year or 5% of its
outstanding advances from the FHLB. At December 31,
2008, the Bank had $5.7 million in stock of the FHLB which was in compliance
with this requirement.
Emergency Economic Stabilization
Act of 2008
The Emergency Economic
Stabilization Act of 2008 (EESA) was enacted on October 3, 2008. EESA enables the federal government, under
terms and conditions to be developed by the Secretary of the Treasury, to
insure troubled assets, including mortgage-backed securities, and collect
premiums from participating financial institutions. EESA includes, among other provisions: (a) the
$700 billion Troubled Assets Relief Program (TARP), under which the Secretary
of the Treasury is authorized to purchase, insure, hold, and sell a wide
variety of financial instruments, particularly those that are based on or
related to residential or commercial mortgages originated or issued on or
before March 14, 2008; and (b) an increase in the amount of deposit
insurance provided by the FDIC.
Under the TARP, the
United States Department of Treasury authorized a voluntary Capital Purchase
Program to purchase up to $250 billion of senior preferred shares of qualifying
financial institutions that elected to participate by November 14,
2008. As previously disclosed, on December 19,
2008, the Company issued to Treasury, 25,000 shares of Series A Preferred
Stock and a warrant to purchase 364,078 shares of the Companys common stock
for an aggregate purchase price of $25.0 million under the TARP Capital
Purchase Program (see note 16 to notes to consolidated financial
statements). Companies participating in
the TARP Capital Purchase Program were required to adopt certain standards
relating to executive compensation. The
terms of the TARP Capital Purchase Program also limit certain uses of capital
by the issuer, including with respect to repurchases of securities and
increases in dividends.
Financial Stability Plan
On February 10,
2009, the Financial Stability Plan (FSP) was announced by the U.S. Treasury
Department. The FSP is a comprehensive
set of measures intended to bolster the financial system. The core elements of the FSP include making bank capital injections,
creating a public-private investment fund to buy troubled assets, establishing
guidelines for loan modification programs and expanding the Federal Reserve
lending program. Treasury has indicated
more details regarding the FSP are to be announced on a newly created
government website, FinancialStability.gov, in the next several weeks.
American Recovery and
Reinvestment Act of 2009
On February 17,
2009, the American Recovery and Reinvestment Act of 2009 (ARRA) was
enacted. ARRA is intended to provide a
stimulus to the U.S. economy in the wake of the economic downturn brought about
by the subprime mortgage crisis and the resulting credit crunch. The bill includes federal tax cuts, expansion
of unemployment benefits and other social welfare provisions, and domestic
spending in education, healthcare, and infrastructure, including the energy
structure. The new law also includes
certain noneconomic recovery related items, including a limitation on executive
compensation in federally aided financial institutions, including institutions,
such as the Company, that had previously received an investment by Treasury
under the TARP Capital Purchase Program.
Under ARRA, an
institution that either will receive funds or which had previously received
funds under TARP, will be subject to certain restrictions and standards
throughout the period in which any obligation arising under TARP remains
outstanding (except for the time during which the federal government holds only
warrants to purchase common stock of the issuer). The following summarizes the significant
requirements of ARRA, which are to be included in standards to be established
by Treasury:
·
limits
on compensation incentives for risks by senior executive officers;
·
a
requirement for recovery of any compensation paid based on inaccurate financial
information;
·
a prohibition on golden parachute
payments to specified officers or employees, which term is generally defined
as any payment for departure from a company for any reason;
·
a prohibition on compensation plans that
would encourage manipulation of reported earnings to enhance the compensation
of employees;
·
a prohibition on bonus, retention award,
or incentive compensation to designated employees, except in the form of
long-term restricted stock;
·
a
requirement that the board of directors adopt a luxury expenditures policy;
·
a
requirement that shareholders be permitted a separate nonbinding vote on
executive compensation;
·
a requirement that the chief executive
officer and the chief financial officer provide a written certification of
compliance with the standards, when established, to the SEC.
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Under ARRA, subject to
consultation with the appropriate federal banking agency, Treasury is required
to permit a recipient of TARP funds to repay any amounts previously provided to
or invested in the recipient by Treasury without regard to whether the
institution has replaced the funds from any other source or to any waiting
period. These provisions of ARRA
relating to repayment of an investment by Treasury are different from the terms
originally adopted under Treasurys Capital Purchase Program and reflected in
the transaction documents executed by the Company on December 19,
2008. Treasury has confirmed that
recipients of funds under the Capital Purchase Program may repay them
irrespective of funding dates notwithstanding the terms of the original
transaction documents.
Homeowner Affordability and
Stability Plan
On February 18,
2009, the Homeowner Affordability and Stability Plan (HASP) was announced by
the President. HASP is intended to
support a recovery in the housing market and ensure that workers can continue
to pay off their mortgages by providing access to low-cost refinancing for
responsible homeowners suffering from falling home prices, implementing a $75
billion homeowner stability initiative to prevent foreclosure and help
responsible families stay in their homes, and supporting low mortgage rates by
strengthening confidence in Fannie Mae and Freddie Mac. More details regarding HASP are expected to
be announced on March 4, 2009. We
continue to monitor these developments and assess their potential impact on the
business of the Company and the Bank.
Other
Legislation
The Gramm-Leach-Bliley
Act, passed in 1999, dramatically changed certain banking laws. One of the most significant changes was that
the separation between banking and the securities businesses mandated by the
Glass-Steagall Act has now been removed, and the provisions of any state law
that prohibits affiliation between banking and insurance entities have been
preempted. Accordingly, the legislation
now permits firms engaged in underwriting and dealing in securities, and
insurance companies, to own banking entities, and permits bank holding
companies (and in some cases, banks) to own securities firms and insurance
companies. The provisions of federal law
that preclude banking entities from engaging in non-financially related
activities, such as manufacturing, have not been changed. For example, a manufacturing company cannot
own a bank and become a bank holding company, and a bank holding company cannot
own a subsidiary that is not engaged in financial activities, as defined by the
regulators.
The legislation creates a
new category of bank holding company called a financial holding company. In order to avail itself of the expanded
financial activities permitted under the law, a bank holding company must
notify the Federal Reserve Board (Federal Reserve) that it elects to be a
financial holding company. A bank
holding company can make this election if it, and all its bank subsidiaries,
are well capitalized, well managed, and have at least a satisfactory Community
Reinvestment Act rating, each in accordance with the definitions prescribed by
the Federal Reserve and the regulators of the subsidiary banks. Once a bank holding company makes such an
election, and provided that the Federal Reserve does not object to such
election by such bank holding company, the financial holding company may engage
in financial activities (i.e., securities underwriting, insurance underwriting,
and certain other activities that are financial in nature as to be determined
by the Federal Reserve) by simply giving a notice to the Federal Reserve within
thirty days after beginning such business or acquiring a company engaged in
such business. This makes the regulatory
approval process to engage in financial activities much more streamlined than
under prior law. On February 7,
2002, the Companys election with the Board of Governors of the Federal Reserve
System to become a financial holding company became effective.
The Sarbanes-Oxley Act of
2002 was enacted to enhance penalties for accounting and auditing improprieties
at publicly traded companies and to protect investors by improving the accuracy
and reliability of corporate disclosures under the federal securities
laws. The Sarbanes-Oxley Act generally
applies to all companies, including the Company, that file or are required to
file periodic reports with the Securities and Exchange Commission under the
Securities Exchange Act of 1934, or the Exchange Act. The legislation includes provisions, among
other things, governing the services that can be provided by a public companys
independent auditors and the procedures for approving such services, requiring
the chief executive officer and chief financial officer to certify certain
matters relating to the companys periodic filings under the Exchange Act,
requiring expedited filings of reports by insiders of their securities
transactions and containing other provisions relating to insider conflicts of
interest, increasing disclosure requirements relating to critical financial
accounting policies and their application, increasing penalties for securities
law violations, and creating a new Public Company Accounting Oversight Board (PCAOB),
a regulatory body subject to SEC jurisdiction with broad powers to set
auditing, quality control and ethics standards for accounting firms. In connection with this legislation, the
national securities exchanges and Nasdaq have adopted rules relating to
certain matters, including the independence of members of a companys audit
committee, as a condition to listing or continued listing. The Company does not believe that the
application of these rules to the Company will have a material effect on
its business, financial condition or results of operations.
The USA PATRIOT Act,
enacted in direct response to the terrorist attacks on September 11, 2001,
strengthens the anti-money laundering provisions of the Bank Secrecy Act. Many of the new provisions added by the Act
apply to accounts at or held by foreign banks, or accounts of or transactions
with foreign entities. While the Bank
does not have a significant foreign business, the new requirements of the Bank
Secrecy Act still require the Bank to use proper procedures to identify its
customers. The Act also requires the
banking regulators to consider a banks record of compliance under the Bank
Secrecy Act in acting on any application filed by a bank. As the Bank is subject to the provisions of
the Bank Secrecy Act (i.e., reporting of cash transactions in excess of
$10,000), the Banks record of compliance in this area will be an additional
factor in any applications filed by it in the future. To the Banks knowledge, its record of
compliance in this area is satisfactory.
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The Fair and Accurate
Credit Transaction Act was adopted in 2003.
It extends and expands upon provisions in the Fair Credit Reporting Act,
affecting the reporting of delinquent payments by customers and denials of
credit applications. The revised act
imposes additional record keeping, reporting, and customer disclosure requirements
on all financial institutions, including the Bank. Also in late 2003, the Check 21 Act was
adopted. This Act affects the way checks
can be processed in the banking system, allowing payments to be converted to electronic
transfers rather than processed as traditional paper checks.
Congress is often
considering some financial industry legislation, and the federal banking
agencies routinely propose new regulations.
The Company cannot predict how any new legislation, or new rules adopted
by the federal banking agencies, may affect its business in the future.
VIST Insurance and VIST
Capital are subject to additional regulatory requirements. VIST Insurance is subject to Pennsylvania
insurance laws and the regulations of the Pennsylvania Department of Insurance. The securities brokerage activities of VIST
Capital are subject to regulation by the SEC and the NASD/SIPC, and VIST
Capital is a registered investment advisor subject to regulation by the SEC.
Item 1A. Risk
Factors
Recent legislative and regulatory
initiatives to address difficult market and economic conditions may not
stabilize the U.S. banking system.
On October 3, 2008,
President Bush signed into law the Emergency Economic Stabilization Act of 2008
(the EESA) which, among other measures, authorizes Treasury to purchase from
financial institutions and their holding companies up to $700 billion in
mortgage loans, mortgage-related securities and certain other financial
instruments, including debt and equity securities issued by financial
institutions and their holding companies, under a troubled asset relief
program, or TARP. The purpose of TARP
is to restore confidence and stability to the U.S. banking system and to
encourage financial institutions to increase their lending to customers and to
each other. Under the TARP Capital
Purchase Program, Treasury is purchasing equity securities from participating
institutions. EESA also increased
federal deposit insurance on most deposit accounts from $100,000 to $250,000.
This increase is in place until the end of 2009 and is not covered by deposit
insurance premiums paid by the banking industry.
EESA followed, and has
been followed by, numerous actions by the Board of Governors of the Federal
Reserve System, the U.S. Congress, Treasury, the FDIC, the SEC and others to
address the current liquidity and credit crisis that has followed the sub-prime
meltdown that commenced in 2007. These
measures include homeowner relief that encourage loan restructuring and
modification; the establishment of significant liquidity and credit facilities
for financial institutions and investment banks; the lowering of the federal
funds rate; emergency action against short selling practices; a temporary
guaranty program for money market funds; the establishment of a commercial
paper funding facility to provide back-stop liquidity to commercial paper
issuers; and coordinated international efforts to address illiquidity and other
weaknesses in the banking sector.
On October 14, 2008,
the FDIC announced the establishment of a temporary liquidity guarantee program
to provide full deposit insurance for all non-interest bearing transaction
accounts and guarantees of certain newly issued senior unsecured debt issued by
FDIC-insured institutions and their holding companies. Insured institutions were automatically covered
by this program from October 14, 2008 until December 5, 2008, unless
they opted out prior to that date. Under
the program, the FDIC will guarantee timely payment of newly issued senior
unsecured debt issued on or before June 30, 2009. The debt includes all newly issued unsecured
senor debt including promissory notes, commercial paper and inter-bank
funding. The aggregate coverage for an
institution may not exceed 125% of its debt outstanding on September 30,
2008 that was scheduled to mature before June 30, 2009, or, for certain
insured institutions, 2% of liabilities as of September 30, 2008. The guarantee will extend to June 30,
2012 even if the maturity of the debt is after that date.
The purpose of these
legislative and regulatory actions is to stabilize the U.S. banking
system. EESA and the other regulatory
initiatives described above may not have their desired effects. If the volatility in the markets continues
and economic conditions fail to improve or worsen, our business, financial
condition, results of operations and cash flows could be materially and
adversely affected.
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Difficult market conditions and
economic trends have adversely affected our industry and our business.
We are particularly
exposed to downturns in the U. S. housing market. Dramatic declines in the housing market over
the past year, with decreasing home prices and increasing delinquencies and
foreclosures, may have a negative impact on the credit performance of mortgage,
consumer, commercial and construction loan portfolios resulting in significant
write-downs of assets by many financial institutions. In addition, the values of real estate
collateral supporting many loans have declined and may continue to decline.
General downward economic trends, reduced availability of commercial credit and
increasing unemployment may negatively impact the credit performance of
commercial and consumer credit, resulting in additional write-downs. Concerns over the stability of the financial
markets and the economy have resulted in decreased lending by financial
institutions to their customers and to each other. This market turmoil and tightening of credit
has led to increased commercial and consumer deficiencies, lack of customer
confidence, increased market volatility and widespread reduction in general
business activity. Competition among
depository institutions for deposits has increased significantly. Financial institutions have experienced
decreased access to deposits or borrowings.
The resulting economic pressure on consumers and businesses and the lack
of confidence in the financial markets may adversely affect our business,
financial condition, results of operations and stock price. We do not expect that the difficult market
conditions will improve in the near future. A worsening of these conditions would likely
exacerbate the adverse effects of these difficult market conditions on us and
others in the industry. In particular,
we may face the following risks in connection with these events:
·
We expect to face increased regulation of
our industry. Compliance with such
regulation may increase our costs and limit our ability to pursue business
opportunities.
·
Our ability to assess the
creditworthiness of customers and to estimate the losses inherent in our credit
exposure is made more complex by these difficult market and economic
conditions.
·
We also may be required to pay even
higher Federal Deposit Insurance Corporation premiums than the recently
increased level, because financial institution failures resulting from the
depressed market conditions have depleted and may continue to deplete the
deposit insurance fund and reduce its ratio of reserves to insured deposits.
·
Our ability to borrow from other
financial institutions or the Federal Home Loan Bank on favorable terms or at
all could be adversely affected by further disruptions in the capital markets
or other events.
·
We may experience a prolonged decrease in
dividend income from our investment in Federal Home Loan Bank stock.
·
We may experience increases in
foreclosures, delinquencies and customer bankruptcies, as well as more
restricted access to funds.
Current levels of market
volatility are unprecedented.
The capital and credit
markets have been experiencing volatility and disruption for more than a
year. In recent months, the volatility
and disruption has reached unprecedented levels. In some cases, the markets have produced
downward pressure on stock prices and credit availability for certain issuers
without regard to those issuers underlying financial strength. If current levels of market disruption and
volatility continue or worsen, there can be no assurance that we will not
experience an adverse effect, which may be material, on our ability to access
capital and on our business, financial condition, results of operations and
cash flows.
The market value of our
securities portfolio may continue to be impacted by the level of interest rates
and the credit quality and strength of the underlying issuers.
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. As of December 31,
2008, we owned single issue and pooled trust preferred securities and private
label collateralized mortgage obligations whose aggregate historical cost basis
is greater than their estimated fair value (see note 5 of the consolidated
financial statements). 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.
The
Companys banking subsidiary, VIST Bank, is a member of the FHLB and is
required
to purchase
and maintain stock in the FHLB in an amount equal to the greater of 1% of its
aggregate unpaid residential mortgage loans, home purchase contracts or similar
obligations at the beginning of each year or 5% of its outstanding advances
from the FHLB. At December 31,
2008, the Bank had $5.7 million in stock of the FHLB which was in compliance
with this requirement. These equity securities are restricted in
that they can only be sold back to the respective institutions or another
member institution at par. Therefore,
they are less liquid than other tradable equity securities, their fair value is
equal to amortized cost, and no impairment write-downs have been recorded on these
securities during 2008, 2007, or 2006. At December 31, 2008, the Bank had $53.4
million in short-term FHLB advances outstanding and $50.0 million in
longer-term FHLB advances outstanding.
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The
FHLB of Pittsburgh announced in December 2008 that it voluntarily
suspended the payment of dividends and the repurchase of excess capital stock
from member banks. The FHLB cited a
significant reduction in the level of core earnings resulting from lower
short-term interest rates, the increased cost of maintaining liquidity and
constrained access to the debt markets at attractive rates and maturities as
the main reasons for the decision to suspend dividends and the repurchase
excess capital stock. The FHLB last paid
a dividend in the third quarter of 2008.
Accounting guidance indicates that an investor in FHLB Pittsburgh
capital stock should recognize impairment if it concludes that it is not
probable that it will ultimately recover the par value of its shares. The decision of whether impairment exists is
a matter of judgment that should reflect the investors view of FHLB Pittsburghs
long-term performance, which includes factors such as its operating
performance, the severity and duration of declines in the market value of its
net assets related to its capital stock amount, its commitment to make payments
required by law or regulation and the level of such payments in relation to its
operating performance, the impact of legislation and regulatory changes on FHLB
Pittsburgh, and accordingly, on the members of FHLB Pittsburgh and its
liquidity and funding position. After
evaluating all of these considerations, the Company believes the par value of
its shares will be recovered. Future
evaluations of the above mentioned factors could result in the Company
recognizing an impairment charge.
Changes in interest rates could
reduce our income, cash flows and asset values.
Our income and cash flows
and the value of our assets depend to a great extent on the difference between
the interest rates we earn on interest-earning assets, such as loans and
investment securities, and the interest rates we pay on interest-bearing liabilities
such as deposits and borrowings. These
rates are highly sensitive to many factors which are beyond our control,
including general economic conditions and policies of various governmental and
regulatory agencies and, in particular, the Board of Governors of the Federal
Reserve System. Changes in monetary policy, including changes in interest
rates, will influence not only the interest we receive on our loans and
investment securities and the amount of interest we pay on deposits and
borrowings but will also affect our ability to originate loans and obtain
deposits and the value of our investment portfolio. If the rate of interest we pay on our
deposits and other borrowings increases more or decreases less than the rate of
interest we earn on our loans and other investments, our net interest income,
and therefore our earnings, could be adversely affected. Our earnings also could be adversely affected
if the rates on our loans and other investments fall more quickly than those on
our deposits and other borrowings.
Our financial condition and
results of operations would be adversely affected if our allowance for loan
losses is not sufficient to absorb actual losses or if we are required to
increase our allowance.
Despite our underwriting
criteria, we may experience loan delinquencies and losses. In order to absorb losses associated with
nonperforming loans, we maintain an allowance for loan losses based on, among
other things, historical experience, an evaluation of economic conditions, and
regular reviews of delinquencies and loan portfolio quality. Determination of the allowance inherently
involves a high degree of subjectivity and requires us to make significant
estimates of current credit risks and future trends, all of which may undergo
material changes. At any time there are
likely to be loans in our portfolio that will result in losses but that have
not been identified as nonperforming or potential problem credits. We cannot be
sure that we will be able to identify deteriorating credits before they become
nonperforming assets or that we will be able to limit losses on those loans
that are identified. We may be required to increase our allowance for loan
losses for any of several reasons. State
and federal regulators, in reviewing our loan portfolio as part of a regulatory
examination, may request that we increase our allowance for loan losses. Changes in economic conditions affecting
borrowers, new information regarding existing loans, identification of additional
problem loans and other factors, both within and outside of our control, may
require an increase in our allowance. In
addition, if charge-offs in future periods exceed our allowance for loan
losses, we will need additional increases in our allowance for loan
losses. Any increases in our allowance
for loan losses will result in a decrease in our net income and, possibly, our
capital, and may materially affect our results of operations in the period in
which the allowance is increased.
Competition may decrease our
growth or profits.
We face substantial
competition in all phases of our operations from a variety of different
competitors, including commercial banks, savings and loan associations, mutual
savings banks, credit unions, consumer finance companies, factoring companies,
leasing companies, insurance companies and money market mutual funds. There is very strong competition among
financial services providers in our principal service area. Our competitors may have greater resources,
higher lending limits or larger branch systems than we do. Accordingly, they may be able to offer a
broader range of products and services as well as better pricing for those
products and services than we can.
In addition, some of the
financial services organizations with which we compete are not subject to the
same degree of regulation as is imposed on federally insured financial
institutions. As a result, those
non-bank competitors may be able to access funding and provide various services
more easily or at less cost than we can, adversely affecting our ability to
compete effectively.
We may be adversely affected by
government regulation.
The banking industry is
heavily regulated. Banking regulations are primarily intended to protect the
federal deposit insurance funds and depositors, not shareholders. Changes in
the laws, regulations, and regulatory practices affecting the banking industry
may increase our costs of doing business or otherwise adversely affect us and
create competitive advantages for others. Regulations
12
Table of Contents
affecting banks and
financial services companies undergo continuous change, and we cannot predict
the ultimate effect of these changes, which could have a material adverse
effect on our profitability or financial condition.
We rely on our management and
other key personnel, and the loss of any of them may adversely affect our
operations.
We are and will continue
to be dependent upon the services of our executive management team. In
addition, we will continue to depend on our ability to retain and recruit key
commercial loan officers. The unexpected
loss of services of any key management personnel or commercial loan officers
could have an adverse effect on our business and financial condition because of
their skills, knowledge of our market, years of industry experience and the
difficulty of promptly finding qualified replacement personnel.
Environmental liability
associated with lending activities could result in losses
.
In the course of our
business, we may foreclose on and take title to properties securing our
loans. If hazardous substances were
discovered on any of these properties, we could be liable to governmental
entities or third parties for the costs of remediation of the hazard, as well
as for personal injury and property damage.
Many environmental laws can impose liability regardless of whether we
knew of, or were responsible for, the contamination. In addition, if we arrange for the disposal
of hazardous or toxic substances at another site, we may be liable for the
costs of cleaning up and removing those substances from the site even if we
neither own nor operate the disposal site.
Environmental laws may require us to incur substantial expenses and may
materially limit use of properties we acquire through foreclosure, reduce their
value or limit our ability to sell them in the event of a default on the loans
they secure. In addition, future laws or
more stringent interpretations or enforcement policies with respect to existing
laws may increase our exposure to environmental liability.
Failure
to implement new technologies in our operations may adversely affect our growth
or profits.
The market for financial
services, including banking services and consumer finance services, is
increasingly affected by advances in technology, including developments in
telecommunications, data processing, computers, automation, Internet-based
banking and telebanking. Our ability to compete successfully in our markets may
depend on the extent to which we are able to exploit such technological
changes. However, we can provide no assurance that we will be able to properly
or timely anticipate or implement such technologies or properly train our staff
to use such technologies. Any failure to
adapt to new technologies could adversely affect our business, financial
condition or operating results.
An investment in our common stock
is not an insured deposit.
Our common stock is not a
bank deposit and, therefore, is not insured against loss by the Federal Deposit
Insurance Corporation, commonly referred to as the FDIC, any other deposit
insurance fund or by any other public or private entity. Investment in our common stock is subject to
the same market forces that affect the price of common stock in any company.
Our ability to pay dividends is
limited by law and federal banking regulation.
Our ability to pay
dividends to our shareholders largely depends on our receipt of dividends from
VIST Bank
.
The amount of dividends that VIST Bank may pay to us is limited by
federal laws and regulations. We also may decide to limit the payment of
dividends even when we have the legal ability to pay them in order to retain
earnings for use in our business.
Federal and state banking laws,
our articles of incorporation and our by-laws may have an anti-takeover effect.
Federal law imposes
restrictions, including regulatory approval requirements, on persons seeking to
acquire control over us. Pennsylvania
law also has provisions that may have an anti-takeover effect. In addition, our articles of incorporation
and bylaws permit our board of directors to issue, without shareholder
approval, preferred stock and additional shares of common stock that could
adversely affect the voting power and other rights of existing common
shareholders. These provisions may serve
to entrench management or discourage a takeover attempt that shareholders
consider to be in their best interest or in which they would receive a
substantial premium over the current market price.
We plan to
continue to grow rapidly and there are risks associated with rapid growth.
We intend to continue to
expand our business and operations to increase deposits and loans. Continued growth may present operating and
other problems that could adversely affect our business, financial condition
and results of operations. Our growth may place a strain on our administrative
and operational, personnel, and financial resources and increase demands on our
systems and controls. Our ability to
manage growth successfully will depend on our ability to attract qualified
personnel and maintain cost controls and asset quality while attracting
additional loans and deposits on favorable terms, as well as on factors beyond
our control, such as economic conditions and interest rate trends. If we grow
too quickly and are not able to attract qualified personnel, control costs and
maintain asset quality, this continued rapid growth could materially adversely
affect our financial performance.
13
Table of Contents
Our legal lending limits are
relatively low and restrict our ability to compete for larger customers.
At December 31,
2008, our lending limit per borrower was approximately $14.5 million, or
approximately 12% of our capital.
Accordingly, the size of loans that we can offer to potential borrowers
(without participation by other lenders) is less than the size of loans that
many of our competitors with larger capitalization are able to offer. Our legal lending limit also impacts the
efficiency of our lending operation because it tends to lower our average loan
size, which means we have to generate a higher number of transactions to
achieve the same portfolio volume. We may engage in loan participations with
other banks for loans in excess of our legal lending limits. However, there can be no assurance that such
participations will be available at all or on terms which are favorable to us
and to our customers.
If we are unable to identify and acquire other
financial institutions and successfully integrate their acquired businesses,
our business and earnings may be negatively affected.
Acquisition of other financial
institutions is a component of our growth strategy. The market for acquisitions
remains highly competitive, and we may be unable to find acquisition candidates
in the future that fit our acquisition and growth strategy.
Acquisitions of financial
institutions involve operational risks and uncertainties, and acquired
companies may have unforeseen liabilities, exposure to asset quality problems,
key employee and customer retention problems and other problems that could
negatively affect our organization. We
may not be able to complete future acquisitions and, if completed, we may not
be able to successfully integrate the operations, management, products and
services of the entities that we acquire and eliminate redundancies. The
integration process may also require significant time and attention from our
management that they would otherwise direct at servicing existing business and
developing new business. Our failure to successfully integrate the entities we
acquire into our existing operations may increase our operating costs
significantly and adversely affect our business and earnings.
The market price for our common
stock may be volatile.
The market price for our
common stock has fluctuated, ranging between $18.43 and $7.73 per share during
the 12 months ended December 31, 2008. The overall market and the price of
our common stock may continue to be volatile. There may be a significant impact
on the market price for our common stock due to, among other things,
developments in our business, variations in our anticipated or actual operating
results, changes in investors or analysts perceptions of the risks and
conditions of our business and the size of the public float of our common
stock. The average daily trading volume
for our common stock as reported on NASDAQ was 2,984 shares during the twelve
months ended December 31, 2008, with daily volume ranging from a low of
zero shares to a high of 85,700 shares.
There can be no assurance that a more active or consistent trading
market in our common stock will develop. As a result, relatively small trades
could have a significant impact on the price of our common stock.
Market conditions may adversely
affect our fee based investment and insurance business.
The revenues of our fee
based insurance business are derived primarily from commissions from the sale
of insurance policies, which commissions are generally calculated as a
percentage of the policy premium. These
insurance policy commissions can fluctuate as insurance carriers from time to
time increase or decrease the premiums on the insurance products we sell. Similarly, we receive fee based revenues from
commissions from the sale of securities and investment advisory fees. In the event of decreased stock market
activity, the volume of trading facilitated by VIST Capital Management, LLC
will in all likelihood decrease resulting in decreased commission revenue on
purchases and sales of securities. In
addition, investment advisory fees, which are generally based on a percentage
of the total value of an investment portfolio, will decrease in the event of
decreases in the values of the investment portfolios, for example, as a result
of overall market declines.
Item 1B.
Unresolved Staff
Comments
None
14
Table of Contents
Item
2.
Properties
The Companys principal
office is located in the administration building at 1240 Broadcasting Road,
Wyomissing, Pennsylvania.
Listed below are the
locations of properties owned or leased by the Company and its
subsidiaries. Owned properties are not
subject to any mortgage, lien or encumbrance.
Property Location
|
|
Leased or Owned
|
Corporate Office
1240 Broadcasting Road
Wyomissing, Pennsylvania
|
|
Leased
|
|
|
|
Operations Center
1044 MacArthur Road
Reading, Pennsylvania
|
|
Leased
|
|
|
|
North Pointe Financial
Center
241 South Centre Avenue
Leesport, Pennsylvania
|
|
Leased
|
|
|
|
Northeast Reading
Financial Center
1210 Rockland Street
Reading, Pennsylvania
|
|
Leased
|
|
|
|
Hamburg Financial
Center
801 South Fourth Street
Hamburg, Pennsylvania
|
|
Leased
|
|
|
|
Bern Township Financial
Center
909 West Leesport Road
Leesport, Pennsylvania
|
|
Leased
|
|
|
|
Wernersville Financial
Center
1 Reading Drive
Wernersville, Pennsylvania
|
|
Leased
|
|
|
|
Breezy Corner Financial
Center
3401-3 Pricetown Road
Fleetwood, Pennsylvania
|
|
Leased
|
|
|
|
Blandon Financial
Center
100 Plaza Drive
Blandon, Pennsylvania
|
|
Leased
|
|
|
|
Wyomissing Financial
Center
1199 Berkshire Boulevard
Wyomissing, Pennsylvania
|
|
Leased
|
|
|
|
Schuylkill Haven
Financial Center
237 Route 61 South
Schuylkill Haven, Pennsylvania
|
|
Leased
|
|
|
|
Birdsboro Financial
Center
350 West Main Street
Birdsboro, Pennsylvania
|
|
Leased
|
|
|
|
Exeter Financial Center
4361 Perkiomen Avenue
Reading, Pennsylvania
|
|
Leased
|
15
Table
of Contents
Property Location
|
|
Leased or Owned
|
Sinking Spring
Financial Center
4708 Penn Ave
Sinking Spring, Pennsylvania
|
|
Leased
|
|
|
|
Blue Bell Financial
Center
The Madison Bank Building
1767 Sentry Parkway West
Blue Bell, Pennsylvania
|
|
Leased
|
|
|
|
Centre Square Financial
Center
1380 Skippack Pike
Blue Bell, Pennsylvania
(Scheduled to Close in 2009)
|
|
Leased
|
|
|
|
Conshohocken Financial
Center
Plymouth Corporate Center
Suite 600
625 Ridge Pike
Conshohocken, Pennsylvania
|
|
Leased
|
|
|
|
Fox Chase Financial
Center
8000 Verree Road
Philadelphia, Pennsylvania
|
|
Owned
|
|
|
|
Oaks Financial Center
1232 Egypt Road
Oaks, Pennsylvania
|
|
Leased
|
|
|
|
Strafford Financial
Center
600 West Lancaster Avenue
Strafford, Pennsylvania
|
|
Leased
|
|
|
|
VIST Insurance
108 South Fifth Street
Reading, Pennsylvania
|
|
Owned
|
|
|
|
VIST Insurance
Suite 103
460 Norristown Road
Blue Bell, Pennsylvania
|
|
Leased
|
|
|
|
VIST Bank (Mortgage
Banking Office)
Suite 220
1767 Sentry Parkway West
Blue Bell, Pennsylvania
|
|
Leased
|
|
|
|
VIST Bank (Mortgage
Banking Office)
2213 Quarry Drive
West Lawn, Pennsylvania
|
|
Leased
|
VIST Insurance shares
offices in the Companys administration building located at 1240 Broadcasting
Road, Wyomissing, Pennsylvania. VIST
Insurance is charged a pro rata amount of the total lease expense.
VIST Capital also shares
office space in the Companys administration building in Wyomissing as well as
in VIST Insurances office in Blue Bell and are accordingly charged a pro rata
amount of the total lease expense.
Item
3.
Legal Proceedings
A certain amount of
litigation arises in the ordinary course of the business of the Company, and
the Companys subsidiaries. In the opinion of the management of the Company,
there are no proceedings pending to which the Company, or the Companys
subsidiaries are a party or to which their property is subject, that, if
determined adversely to the Company or its subsidiaries, would be material in
relation to the Companys shareholders equity or financial condition, nor are
there any proceedings pending other than
16
Table of Contents
ordinary routine
litigation incident to the business of the Company and its subsidiaries. In
addition, no material proceedings are pending or are known to be threatened or
contemplated against the Company or its subsidiaries by governmental
authorities.
Item 4.
Submission of Matters to
a Vote of Security Holders
At a special meeting of
shareholders held on December 17, 2008, shareholders of the Company
approved the following matters:
1.
Amendment of VIST Financial Corp.s
Articles of Incorporation to authorize the issuance of up to 1 million shares
of preferred stock.
Votes
For
|
|
Against
|
|
Abstain
|
|
2,916,932
|
|
517,010
|
|
56,420
|
|
2.
Grant management the authority to
adjourn, postpone or continue the special meeting.
Votes
For
|
|
Against
|
|
Abstain
|
|
2,929,075
|
|
501,227
|
|
60,060
|
|
Item 4A.
Executive Officers of
the Registrant
Certain information, as
of December 31, 2008, including principal occupation during the past five
years, relating to each executive officer of the Company is as follows:
Name,
Address, and Position Held with the Company
|
|
Age
|
|
Position
Held
Since
|
|
Principal
Occupation for Past 5 Years
|
|
|
|
|
|
|
|
ROBERT D. DAVIS
Chester Springs, Pennsylvania
President and Chief Executive Officer
|
|
61
|
|
2005
|
|
President and Chief
Executive Officer of the Company and the Bank since September 2005;
Chairman of VIST Insurance, LLC; Chairman of VIST Capital Management, LLC;
prior thereto, President and Chief Executive Officer and Director of Republic
First Bank since 1999.
|
|
|
|
|
|
|
|
EDWARD C. BARRETT
Wyomissing, Pennsylvania
Executive Vice President and Chief Financial
Officer
|
|
60
|
|
2002
|
|
Executive Vice
President since October 2003 and Chief Financial Officer of the Company
since September 2004; prior thereto, Chief Administrative Officer since
July 2002.
|
|
|
|
|
|
|
|
CHRISTINA S. McDONALD
Oreland, Pennsylvania
Executive Vice President and Chief Retail
Banking Officer of VIST Bank
|
|
43
|
|
2004
|
|
Executive Vice
President and Chief Retail Banking Officer of VIST Bank since 2002.
|
|
|
|
|
|
|
|
CHARLES J. HOPKINS
Sinking Spring, Pennsylvania
Senior Vice President of VIST Financial Corp.
|
|
58
|
|
1998
|
|
Vice Chair of VIST
Insurance, LLC since January 2008; prior thereto, President and CEO of
VIST Insurance, LLC since 1992.
|
|
|
|
|
|
|
|
TERRY F. FAVILLA
Lititz, Pennsylvania
Senior Vice President and Treasurer
|
|
47
|
|
2006
|
|
Senior Vice President
and Treasurer of the Company since June 2006; prior thereto, Vice
President and Corporate Controller of the Company since June 2004; prior
thereto, Vice President and Asset/Liability Management Controller of
Susquehanna Bancshares, Inc. since August 1996.
|
17
Table
of Contents
JENETTE L. ECK
Centerport, Pennsylvania
Senior Vice President and Corporate Secretary
|
|
46
|
|
1998
|
|
Senior Vice President
and Secretary of the Company since 2001.
|
|
|
|
|
|
|
|
MICHAEL C. HERR
Wyomissing, Pennsylvania
Chief Operating Officer
|
|
43
|
|
2009
|
|
Chief Operating Officer
of VIST Insurance, LLC since 2009; prior thereto, Senior Vice President of
VIST Insurance, LLC since 2004.
|
|
|
|
|
|
|
|
NEENA M. MILLER
Reading, Pennsylvania
Executive Vice President and Chief Credit
Officer of VIST Bank
|
|
44
|
|
2008
|
|
Executive Vice
President and Chief Credit Officer of VIST Bank since 2008: prior thereto,
Executive Vice President and Chief Credit Officer of Republic First Bank
since 2005; prior thereto, Senior Credit Officer of Republic First Bank since
2004.
|
18
Table of Contents
PART II
Item 5.
Market For Registrants Common
Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Performance Graph
Set forth below is a
graph and table comparing the yearly percentage change in the cumulative total
shareholder return on the Companys common stock against the cumulative total
return on the NASDAQ-Total US Index, and the SNL Mid-Atlantic Bank Index for
the five-year period commencing December 31, 2003, and ending December 31,
2008.
Cumulative total return
on the Companys common stock, the NASDAQ Combination Bank Index, and the SNL
Mid-Atlantic Bank Index equals the total increase in value since December 31,
2003, assuming reinvestment of all dividends.
The graph and table were prepared assuming that $100 was invested on December 31,
2003, in Company common stock, the NASDAQ-Total US Index, and the SNL
Mid-Atlantic Bank Index.
VIST
Financial Corp.
|
|
Period Ending
|
|
Index
|
|
12/31/03
|
|
12/31/04
|
|
12/31/05
|
|
12/31/06
|
|
12/31/07
|
|
12/31/08
|
|
VIST
Financial Corp.
|
|
100.00
|
|
114.91
|
|
113.22
|
|
122.14
|
|
99.60
|
|
44.63
|
|
NASDAQ
Composite
|
|
100.00
|
|
108.59
|
|
110.08
|
|
120.56
|
|
132.39
|
|
78.72
|
|
SNL
Mid-Atlantic Bank
|
|
100.00
|
|
105.91
|
|
107.79
|
|
129.37
|
|
97.83
|
|
53.89
|
|
19
Table of Contents
As of December 31,
2008, there were 780 record holders of the Companys common stock. The market price of the Companys common
stock for each quarter in 2008 and 2007 and the dividends declared on the
Companys common stock for each quarter in 2008 and 2007 are set forth below.
Market
Price of Common Stock
The Companys common
stock is traded on the NASDAQ Global Select Market under the symbol VIST. The following table sets forth, for the
fiscal quarters indicated, the high and low bid and asked price per share of
the Companys common stock, as reported on the NASDAQ Global Select Market, and
has been adjusted for the 5% stock dividend distributed to shareholders on June 15,
2007:
|
|
Bid
|
|
Asked
|
|
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
2008
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
18.47
|
|
$
|
14.50
|
|
$
|
21.00
|
|
$
|
15.31
|
|
Second
Quarter
|
|
17.65
|
|
11.00
|
|
18.00
|
|
14.23
|
|
Third
Quarter
|
|
14.61
|
|
5.40
|
|
17.00
|
|
10.31
|
|
Fourth
Quarter
|
|
11.90
|
|
7.48
|
|
20.00
|
|
7.51
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
23.69
|
|
$
|
20.00
|
|
$
|
24.19
|
|
$
|
20.84
|
|
Second
Quarter
|
|
22.18
|
|
19.45
|
|
23.00
|
|
19.50
|
|
Third
Quarter
|
|
20.00
|
|
18.00
|
|
20.13
|
|
18.28
|
|
Fourth
Quarter
|
|
20.03
|
|
16.50
|
|
20.12
|
|
16.80
|
|
Series A
Preferred Stock and Common Stock Dividends
On December 19,
2008, the Company issued to the Treasury 25,000 shares of Series A
Preferred Stock which pays cumulative dividends at a rate of 5% per annum for
the first five years, and 9% per annum thereafter. Under ARRA, the Series A Preferred Stock
may be redeemed at any time following consultation by the Companys primary
bank regulator and Treasury, not withstanding the terms of the original
transaction documents. Under FAQs
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.
Prior to the earlier of
the third anniversary date of the issuance of the Series A Preferred Stock
(December 19, 2011) or the date on which the Series A Preferred Stock
have been redeemed in whole or the Treasury has transferred all of the Series A
Preferred Stock to third parties which are not affiliates of the Treasury, the
Company can not increase its common stock dividend from the last quarterly cash
dividend per share ($0.10) declared on the common stock prior to October 14,
2008 without the consent of the Treasury,
Cash dividends on the
Companys common stock have historically been payable on the 15
th
of January,
April, July, and October. In 2008, cash
dividends were paid in the months of January, April, July, and November. In 2009, cumulative cash dividends on the Series A
Preferred Stock and cash dividends on common stock are payable on the 15
th
of February,
May, August, and November.
|
|
Dividends
|
|
|
|
Declared
|
|
|
|
(Per Share)
|
|
|
|
2008
|
|
2007
|
|
First
Quarter
|
|
$
|
0.200
|
|
$
|
0.181
|
|
Second
Quarter
|
|
0.200
|
|
0.190
|
|
Third
Quarter
|
|
|
|
0.200
|
|
Fourth
Quarter
|
|
0.100
|
|
0.200
|
|
|
|
|
|
|
|
|
|
20
Table
of Contents
The Company derives a
significant portion of its income from dividends paid to it by the Bank. For a description of certain regulatory
restrictions on the payment of dividends by the Bank to the Company, see BusinessRegulatory
Restrictions on Dividends.
Stock
Repurchase Plan
. On July 17, 2007, the Company announced
that it has increased the number of shares remaining for repurchase under its
stock repurchase plan, originally effective January 1, 2003, and extended May 20,
2004, to 150,000 shares. During 2008,
the Company did not repurchase any of its outstanding shares of common stock. At December 31, 2008, the maximum number
of shares that may yet be purchased under the plan remained at 115,000.
The following table sets
forth certain information relating to shares of the Companys common stock
repurchased by the company during the fourth quarter of 2008.
Period
|
|
Total
Number of
Shares (or Units)
Purchased
|
|
Average
Price Paid
Per Share (or
Units) Purchased
|
|
Total
Number of
Shares (or Units)
Purchased as Part
of Publicly
Announced Plans
or Programs
|
|
Maximum
Number
(or Approximate
Dollar Value) of
Shares (or Units)
That May Yet Be
Purchased Under
the Plans or
Programs
|
|
Month
#1 (October 1 - October 31, 2008)
|
|
|
|
$
|
|
|
|
|
115,000
|
|
Month
#2 (November 1 - November 30, 2008)
|
|
|
|
|
|
|
|
115,000
|
|
Month
#3 (December 1 - December 31, 2008)
|
|
|
|
|
|
|
|
115,000
|
|
Total
|
|
|
|
$
|
|
|
|
|
115,000
|
|
As a result of the
issuance of the Series A Preferred Stock, prior to the earlier of the
third anniversary date of the issuance of the Series A Preferred Stock (December 19,
2011) or the date on which the Series A Preferred Stock has been redeemed
in whole or the Treasury has transferred all of the Series A Preferred
Stock to third parties which are not affiliates of the Treasury, the Company is
generally restricted against redeeming, purchasing or acquiring any shares of
Common Stock or other capital stock or other equity securities of any kind of
the Company without the consent of the Treasury.
21
Table
of Contents
Item
6. Selected Financial Data
The selected consolidated
financial and other data and managements discussion and analysis of financial
condition and results of operation set forth below and in Item 7 hereof is
derived in part from, and should be read in conjunction with, the consolidated
financial statements and notes thereto contained elsewhere herein.
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
(As Restated)
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
(Dollars in thousands except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
1,226,070
|
|
$
|
1,124,951
|
|
$
|
1,041,632
|
|
$
|
965,752
|
|
$
|
877,382
|
|
Securities
available for sale
|
|
226,665
|
|
186,481
|
|
159,603
|
|
176,418
|
|
159,936
|
|
Securities
held to maturity
|
|
3,060
|
|
3,078
|
|
3,117
|
|
6,173
|
|
6,403
|
|
Federal
Home Loan Bank stock
|
|
5,715
|
|
5,562
|
|
4,577
|
|
6,123
|
|
5,842
|
|
Loans,
net of unearned income
|
|
886,305
|
|
820,998
|
|
764,783
|
|
654,244
|
|
596,328
|
|
Allowance
for loan losses
|
|
8,124
|
|
7,264
|
|
7,611
|
|
7,619
|
|
7,248
|
|
Deposits
|
|
850,600
|
|
712,645
|
|
702,839
|
|
659,730
|
|
612,291
|
|
Securities
sold under agreements to repurchase
|
|
120,086
|
|
110,881
|
|
90,987
|
|
69,455
|
|
52,800
|
|
Federal
funds purchased
|
|
53,424
|
|
118,210
|
|
82,105
|
|
66,230
|
|
36,092
|
|
Long-term
debt
|
|
50,000
|
|
45,000
|
|
19,500
|
|
43,000
|
|
54,500
|
|
Junior
subordinated debt
|
|
18,260
|
|
20,232
|
|
20,150
|
|
20,150
|
|
20,150
|
|
Shareholders
equity
|
|
123,629
|
|
106,592
|
|
102,130
|
|
94,756
|
|
90,935
|
|
Book
value per share
|
|
17.30
|
|
18.84
|
|
18.06
|
|
16.98
|
|
16.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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-K.
Selected Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$
|
65,838
|
|
$
|
68,076
|
|
$
|
61,377
|
|
$
|
50,475
|
|
$
|
33,518
|
|
Interest
expense
|
|
30,637
|
|
34,835
|
|
29,521
|
|
20,319
|
|
12,842
|
|
Net
interest income before provision for loan losses
|
|
35,201
|
|
33,241
|
|
31,856
|
|
30,156
|
|
20,676
|
|
Provision
for loan losses
|
|
4,835
|
|
998
|
|
1,084
|
|
1,460
|
|
1,320
|
|
Net
interest income after provision for loan losses
|
|
30,366
|
|
32,243
|
|
30,772
|
|
28,696
|
|
19,356
|
|
Other
income
|
|
11,979
|
|
17,847
|
|
21,458
|
|
24,043
|
|
17,762
|
|
Other
expense
|
|
43,638
|
|
40,874
|
|
40,238
|
|
41,281
|
|
30,548
|
|
Income
(loss) before income taxes
|
|
(1,293
|
)
|
9,216
|
|
11,992
|
|
11,458
|
|
6,570
|
|
Income
taxes (benefit)
|
|
(1,858
|
)
|
1,746
|
|
2,839
|
|
2,727
|
|
1,154
|
|
Net
income (loss)
|
|
$
|
565
|
|
$
|
7,470
|
|
$
|
9,153
|
|
$
|
8,731
|
|
$
|
5,416
|
|
Earnings
per share-basic
|
|
$
|
0.10
|
|
$
|
1.32
|
|
$
|
1.63
|
|
$
|
1.57
|
|
$
|
1.25
|
|
Earnings
per share-diluted
|
|
$
|
0.10
|
|
$
|
1.31
|
|
$
|
1.62
|
|
$
|
1.55
|
|
$
|
1.23
|
|
Cash
dividends per share
|
|
$
|
0.50
|
|
$
|
0.77
|
|
$
|
0.70
|
|
$
|
0.63
|
|
$
|
0.59
|
|
Return
on average assets
|
|
0.05
|
%
|
0.70
|
%
|
0.92
|
%
|
0.95
|
%
|
0.78
|
%
|
Return
on average shareholders equity
|
|
0.54
|
%
|
7.15
|
%
|
9.38
|
%
|
9.36
|
%
|
8.69
|
%
|
Dividend
payout ratio
|
|
503.89
|
%
|
58.53
|
%
|
42.74
|
%
|
40.45
|
%
|
51.24
|
%
|
Average
equity to average assets
|
|
8.95
|
%
|
9.78
|
%
|
9.82
|
%
|
10.16
|
%
|
9.03
|
%
|
22
Table of Contents
Item
7. Managements Discussion and Analysis
of Financial Condition and Results of Operations
The Company is a
financial services company. As of December 31,
2008, VIST Bank, VIST Insurance, LLC, and VIST Capital Management, LLC were
wholly-owned subsidiaries of the Company.
As of December 31, 2008, VIST Mortgage Holdings, LLC was a
wholly-owned, non-bank subsidiary of VIST Bank.
During 2000, VIST Realty
Solutions, LLC was formed as a subsidiary of VIST Bank for the purpose of
providing title insurance and other real estate related services to its
customers through limited partnership arrangements with third parties involved
in the real estate services industry. On
October 29, 2008, VIST Realty Solutions, LLC dissolved its operations by
selling its partnership interest for an amount which approximated its initial
capital contribution.
In May 2002, the
Companys subsidiary, VIST Bank, jointly formed VIST Mortgage Holdings, LLC
with another real estate company. VIST Banks initial investment was
$15,000. In May 2004, VIST Bank
dissolved its investment with the real estate company. In May 2004, VIST Bank formed VIST
Mortgage Holdings, LLC to provide mortgage brokerage services, including,
without limitation, any activity in which a mortgage broker may engage. It is operated as a permissible affiliated
business arrangement within the meaning of the Real Estate Settlement
Procedures Act of 1974. VIST Mortgage Holdings,
LLC is currently inactive.
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 Consultings
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.
On October 1, 2004,
the Company acquired 100% of the outstanding voting shares of Madison
Bancshares Group, Ltd. (Madison), the holding company for Madison Bank, a
Pennsylvania state-chartered commercial bank and its mortgage banking division,
VIST Mortgage. Madison Bank has become a
division of VIST Bank. For each share of
Madison common stock, the Company exchanged 0.6028 shares of the Companys
common stock resulting in the issuance of 1,311,010 shares of the Companys
common stock and a cash payment of $11,790.
The total purchase price was $34.6 million. The value of the common shares issued was
determined based on the average market price of the Companys common shares
five days before and five days after the date of the announcement. In connection with the transaction, Madison
paid cash of $7.1 million and recognized the expense for 699,122 Madison
options and warrants outstanding at September 30, 2004. In addition, Madison paid cash of $2.3
million and recognized the expense for the termination of existing contractual
arrangements.
Critical
Accounting Policies
Disclosure of the Companys
significant accounting policies is included in Note 1 to the consolidated
financial statements. Certain of these policies are particularly sensitive
requiring significant judgments, estimates and assumptions to be made by
management. Additional information is
contained in Managements Discussion and Analysis and the Notes to the
Consolidated Financial Statements for the most sensitive of these issues. These include, the provision and allowance
for loan losses, revenue recognition for insurance activities, stock based
compensation, derivative financial instruments, goodwill and intangible assets
and investment securities other-than-temporary impairment evaluation. These discussions, analysis and 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.
Allowance
for Loan Losses
The provision for loan
losses charged to operating expense reflects the amount deemed appropriate by
management to provide for known and inherent losses in the existing loan
portfolio. Managements judgment is
23
Table of Contents
based on the evaluation
of individual loans past experience, the assessment of current economic
conditions, and other relevant factors.
Loan losses are charged directly against the allowance for loan losses
and recoveries on previously charged-off loans are added to the allowance.
Management uses
significant estimates to determine the allowance for loan losses. Consideration is given to a variety of
factors in establishing these estimates including current economic conditions,
diversification of the loan portfolio, delinquency statistics, borrowers
perceived financial and managerial strengths, the adequacy of underlying
collateral, if collateral dependent, or present value of future cash flows, and
other relevant factors. Since the
sufficiency of the allowance for loan losses is dependent, to a great extent,
on conditions that may be beyond our control, it is possible that managements
estimates of the allowance for loan losses and actual results could differ in
the near term. Although we believe that
we use the best information available to establish the allowance for loan
losses, future additions to the allowance may be necessary if certain future
events occur that may cause actual results to differ from the assumptions used
in making the evaluation. For example, a
downturn in the local economy could cause increases in non-performing
loans. Additionally, a decline in real
estate values could cause some of our loans to become inadequately
collateralized. In either case, this may
require us to increase our provisions for loan losses, which would negatively
impact earnings. Additionally, a large
loss could deplete the allowance and require increased provisions to replenish
the allowance, which would negatively impact earnings. In addition, regulatory authorities, as an
integral part of their examination, periodically review the allowance for loan
losses. They may require additions to
the allowance for loan losses based upon their judgments about information
available to them at the time of examination.
Future increases to our allowance for loan losses, whether due to
unexpected changes in economic conditions or otherwise, could adversely affect
our future results of operations.
Revenue Recognition for Insurance Activities
Insurance revenues are
derived from commissions and fees.
Commission revenues, as well as the related premiums receivable and
payable to insurance companies, are recognized the later of the effective date
of the insurance policy or the date the client is billed, net of an allowance
for estimated policy cancellations. The
reserve for policy cancellations is periodically evaluated and adjusted as
necessary. Commission revenues related
to installment premiums are recognized as billed. Commissions on premiums billed directly by
insurance companies are generally recognized as income when received. Contingent commissions from insurance
companies are generally recognized as revenue when the data necessary to
reasonably estimate such amounts is obtained.
A contingent commission is a commission paid by an insurance company
that is based on the overall profit and/or volume of the business placed with
the insurance company. Fee income is
recognized as services are rendered.
Stock-Based
Compensation
Prior to 2006, the
Company accounted for stock-based compensation in accordance with Accounting
Principals Board Opinion (APB) No. 25, Accounting for Stock Issued to
Employees, as permitted by Statement of Financial Accounting Standards (SFAS)
No. 123. Under APB No. 25, no
compensation expense was recognized in the income statement related to any
option granted under the Companys stock option plans.
In December 2004,
the Financial Accounting Standards Board (FASB) issued Statement No. 123
(R), Share-Based Payment. Statement No. 123
(R) addresses the accounting for share-based payment transactions in which
an enterprise receives employee services in exchange for (a) equity
instruments of the enterprise or (b) liabilities that are based on the
fair value of the enterprises equity instruments or that may be settled by the
issuance of such equity instruments.
Statement 123 (R) requires an entity to recognize the grant-date
fair-value of stock options and its other equity-based compensation issued to
the employees in the income statement.
The revised Statement generally requires that an entity account for
those transactions using the fair-value-based method, and eliminates the
intrinsic value method of accounting in APB Opinion No. 25 which was
permitted under Statement No. 123, as originally issued.
The revised Statement
requires entities to disclose information about the nature of the share-based
payment transaction and the effects of those transactions on the financial
statements. Statement No. 123 (R) is
effective for fiscal periods beginning after June 15, 2005. All public companies use either the modified
prospective or the modified retrospective transition method. Effective January 1, 2006, the Company
adopted SFAS No. 123 using the modified prospective method. Using the modified prospective method, the
Companys total stock-based compensation expense, net of related tax effects,
was $211,000 for the year ending December 31, 2008. Any additional impact that the adoption of
this statement will have on our results of operations will be determined by
share-based payments granted in future periods.
24
Table of Contents
Derivative Financial Instruments
The Company maintains an
overall interest rate risk-management strategy that incorporates the use of
derivative instruments to minimize significant unplanned fluctuations in
earnings that are caused by interest rate volatility. The Companys goal is to manage interest rate
sensitivity by modifying the repricing or maturity characteristics of certain
balance sheet assets and liabilities so that the net interest margin is not, on
a material basis, adversely affected by movements in interest rates. As a result of interest rate fluctuations,
hedged assets and liabilities will appreciate or depreciate in market
value. The effect of this unrealized
appreciation or depreciation will generally be offset by income or loss on the
derivative instruments that are linked to the hedged assets and
liabilities. The Company views this
strategy as a prudent management of interest rate sensitivity, such that
earnings are not exposed to undue risk presented by changes in interest rates.
By using derivative
instruments, the Company is exposed to credit and market risk. If the counterparty fails to perform, credit
risk exists to the extent of the fair value gain in a derivative. When the fair value of a derivative contract
is positive, this generally indicates that the counterparty owes the Company,
and, therefore, creates a repayment risk for the Company. When the fair value of a derivative contract
is negative, the Company owes the counterparty and, therefore, it has no
repayment risk. The Company minimizes
the credit (or repayment) risk in the derivative instruments by entering into
transactions with high quality counterparties.
Market risk is the
adverse effect that a change in interest rates, currency, or implied volatility
rates has on the value of a financial instrument. The Company manages the market risk
associated with interest rate contracts by establishing and monitoring limits
as to the types and degree of risk that may be undertaken. The Company periodically measures this risk
by using value-at-risk methodology.
During 2002, the Company
entered into an interest rate swap to convert its fixed rate trust preferred
securities to floating rate debt. Both
the interest rate swap and the related debt are recorded on the balance sheet
at fair value through adjustments to other expense.
During 2003, the Company
also entered into an interest rate cap agreement to limit its exposure to the
variable rate interest achieved through the interest rate swap. The interest rate cap was not designated as a
cash flow hedge and thus, it is carried on the balance sheet in other assets at
fair value through adjustments to interest expense.
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. 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.
Goodwill
and Other Intangible Assets
The Company has recorded
goodwill of $39.7 million at December 31, 2008 related to the acquisition
of its banking, insurance and wealth management companies. The Company utilizes a third party valuation
service to perform its annual goodwill impairment test in the fourth quarter of
each calendar year. A fair value is
determined for the banking and financial services, insurance services and investment
services reporting segments. If the fair
value of the reporting unit exceeds the book value, no write downs of goodwill
is necessary. If the fair value is less
than the book value, an additional test is necessary to assess the proper
carrying value of goodwill. As a result
of the third part valuation analysis, the Company determined that no goodwill
impairment write-off was necessary during 2008 and 2007.
Business unit valuation
is inherently subjective, with a number of factors based on assumption and
management judgments. Among these are
future growth rates, discount rates and earnings capitalization rates. Changes in assumptions and results due to
economic conditions, industry factors and reporting unit performance could
result in different assessments of the fair value and could result in
impairment charges in the future.
Framework for Interim Impairment
Analysis
The Company utilizes the
following framework from SFAS No. 142 Goodwill and Other Intangible
Assets to evaluate whether an interim goodwill impairment test is required,
given the occurrence of events or if
25
Table of Contents
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 Assets of 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.
When applying the
framework above, management additionally considers that a decline in the
Companys market capitalization could reflect an event or change in
circumstances that would more likely than not reduce the fair value of
reporting unit below its carrying value.
However, in considering potential impairment of our goodwill, management
does not consider the fact that our market capitalization is less than the
carrying value of our Company to be determinative that impairment exists. This is because there are factors, such as
our small size and small market capitalization, which do not take into account
important factors in evaluating the value of our Company and each reporting
unit, such as the benefits of control or synergies. Consequently, managements annual process for
evaluating potential impairment of our goodwill (and evaluating subsequent
interim period indicators of impairment) involves a detailed level analysis and
incorporates a more granular view of each reporting unit than aggregate market
capitalization, as well as significant valuation inputs.
Annual and Interim Impairment
Tests and Results
Management estimates fair
value annually 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. Our annual
impairment assessment was completed in January 2009, with an effective
date of October 31, 2008. That
assessment reflected that the fair values of our reporting units with recorded
goodwill was more than their carrying amounts, and therefore there was no need
to perform an additional test to assess the proper carrying value of goodwill
(a step 2 evaluation).
On an interim basis,
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 our stock price
continues to be influenced by the financial services sector as well as our
relative small size, based upon a more detailed review of the assumptions
underlying the valuation of each reporting unit, we do not believe that there
has been a substantial change in any of the material assumptions. Management concluded that there has not been
significant deterioration in the underlying inputs and assumptions since the
annual impairment assessment date of October 31, 2008; therefore, an
interim goodwill impairment test during 2008 was not required.
Consideration of Market Capitalization
in Light of the Results of Our Annual and Interim Goodwill Assessments
The Companys stock
price, like the stock prices of many other financial services companies, is
trading below both book value as well as tangible book value. We believe that the Companys current market
value does not represent the fair value of the Company when taken as a whole
and in consideration of other relevant factors.
Because the Company is viewed by investors predominantly as a community
bank, we believe our market capitalization is based on net tangible book value,
reduced by nonperforming assets in excess of the allowance for loan and lease
losses. We believe that the market place
ascribes effectively no value on the Companys fee-based reporting units, the
assets of which are composed principally of goodwill and intangibles. Management believes that as a stand-alone
business each of these reporting units has value which is not being
incorporated in the markets valuation of VIST reflected in its share
price. Management also believes that if
these reporting units were carved
26
Table of Contents
out of the Company and
sold, they would command a sales price reflective of their current
performance. Management further believes
that if these reporting units were sold, the results of the sale would increase
both the tangible book value (resulting from, among other things, the reduction
in associated goodwill) and therefore market capitalization, given the markets
current valuation approach described above.
In summary, management
believes that:
·
the
market capitalization of the Company is not reflective of the value of the
Company as a whole,
·
the
marketplace is effectively ascribing no value to the fee-based reporting units,
and
·
the facts and circumstances we considered in our 2008
annual impairment test have not significantly changed.
The following lists (in
tabular format) each reporting unit, and identifies the respective units fair
value, carrying amount, and reporting unit goodwill with respect to the annual
goodwill impairment test performed in the fourth quarter of 2008:
Results of Fourth
Quarter Impairment Testing (October 31, 2008 Testing Date)
(amounts in
thousands)
Reporting
Unit
|
|
Fair Value at (10/31/08)
|
|
Carrying Amount
(including goodwill)
(10/31/08)
|
|
Goodwill at
(10/31/08)
|
|
VIST
Bank
|
|
$
|
132,076
|
|
$
|
98,250
|
|
$
|
27,769
|
|
VIST
Insurance, LLC
|
|
13,334
|
|
12,523
|
|
10,942
|
|
VIST
Capital Management
|
|
1,573
|
|
1,331
|
|
1,021
|
|
Totals
|
|
$
|
146,983
|
|
$
|
112,104
|
|
$
|
39,732
|
|
Since the fair value of
the Companys reporting units exceeded their respective carrying amounts, the
Company concluded that goodwill was not impaired; thus, an additional test to
assess the proper carrying value of goodwill (a step 2 evaluation) was not
considered necessary.
27
Table of Contents
Investment
Securities Impairment Evaluation
Management evaluates
securities for the 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) 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. As of December 31,
2008, we owned 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 (see note 5 of the consolidated financial statements). 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.
Federal
Home Loan Bank Stock Impairment Evaluation
The
Companys banking subsidiary, VIST Bank, is required to maintain certain
amounts of FHLB stock as a member of the FHLB.
These equity securities are restricted in that they can only be sold
back to the respective institutions or another member institution at par. Therefore, they are less liquid than other
tradable equity securities, their fair value is equal to amortized cost, and no
impairment write-downs have been recorded on these securities during 2008,
2007, or 2006.
The
FHLB of Pittsburgh announced in December 2008 that it voluntarily
suspended the payment of dividends and the repurchase of excess capital stock
from member banks. The FHLB cited a
significant reduction in the level of core earnings resulting from lower short-term
interest rates, the increased cost of maintaining liquidity and constrained
access to the debt markets at attractive rates and maturities as the main
reasons for the decision to suspend dividends and the repurchase excess capital
stock. The FHLB last paid a dividend in
the third quarter of 2008. Accounting
guidance indicates that an investor in FHLB Pittsburgh capital stock should
recognize impairment if it concludes that it is not probable that it will
ultimately recover the par value of its shares.
The decision of whether impairment exists is a matter of judgment that
should reflect the investors view of FHLB Pittsburghs long-term performance,
which includes factors such as its operating performance, the severity and
duration of declines in the market value of its net assets related to its
capital stock amount, its commitment to make payments required by law or
regulation and the level of such payments in relation to its operating
performance, the impact of legislation and regulatory changes on FHLB
Pittsburgh, and accordingly, on the members of FHLB Pittsburgh and its
liquidity and funding position. After
evaluating all of these considerations, the Company believes the par value of
its shares will be recovered. Future
evaluations of the above mentioned factors could result in the Company
recognizing an impairment charge.
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 year ended December 31 2008. The discussion in this Item 7, Managements
Discussion and Analysis of Financial Condition and Results of Operations,
gives effect to the restatement of the Companys financial statements.
Results
of Operations
Net income for 2008 was
$565,000 or $0.10 per share diluted compared to $7.47 million or $1.31 per
share diluted for 2007 and $9.15 million or $1.62 per share diluted for
2006. These changes are a result of
increasing net interest income after provision for loan losses offset by
decreases in other income each year, net of increases in other expenses. Details regarding changes in net income and
diluted earnings per share follows.
Return on average assets
was 0.05% for 2008, 0.70% for 2007 and 0.92% for 2006. Return on average shareholders equity was
0.54% for 2008, 7.15% for 2007 and 9.38% for 2006.
28
Table of Contents
Included in the operating
results for the twelve months ended December 31, 2008 was a pre-tax loss
of $7.3 million, or $4.8 million after-tax, relating to the sale of perpetual
preferred stock associated with the federal takeover of Fannie Mae and Freddie
Mac. Also included in the operating
results for the twelve months ended December 31, 2008, were pre-tax losses
associated with the sale of the Companys equity holdings of $141,000 in Fannie
Mae common stock and $104,000 in Wachovia Corporation common stock. The total amount of pre-tax losses relating
to the sale of the Companys equity holdings included in the operating results
for the twelve months ended December 31, 2008, were approximately $7.5
million. Included in the operating
results for the twelve months ended December 31, 2007 was a pre-tax loss of
$2.5 million, or $1.6 million after-tax, resulting primarily from a balance
sheet restructuring in March 2007 which included the sale of $64.1 million
in lower-yielding available for sale securities and the reinvestment of the
sale proceeds into higher yielding available for sale investment securities.
Net
Interest Income
Net interest income is a
primary source of revenue for the Company.
This 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
borrowings from the Federal Home Loan Bank and other correspondent banks. Net interest margin is the difference between
the gross (tax-effected) yield on earning assets and the cost of interest
bearing funds as a percentage of earning assets. All discussion of net interest margin is on a
fully taxable equivalent basis. Both net
interest income and net interest margin are influenced by the frequency,
magnitude and direction of interest rate changes and by product concentrations
and volumes of earning assets and funding sources.
Average
Balances, Rates and Net Yield
The following table sets
forth the average daily balances of major categories of interest earning assets
and interest bearing liabilities, the average rate paid thereon, and the net
interest margin for each of the periods indicated.
|
|
Year
Ended December 31,
|
|
|
|
2008
(As Restated)
|
|
2007
|
|
2006
|
|
|
|
|
|
Interest
|
|
|
|
|
|
Interest
|
|
|
|
|
|
Interest
|
|
|
|
|
|
Average
|
|
Income/
|
|
%
|
|
Average
|
|
Income/
|
|
%
|
|
Average
|
|
Income/
|
|
%
|
|
|
|
Balances
|
|
Expense
|
|
Rate
|
|
Balances
|
|
Expense
|
|
Rate
|
|
Balances
|
|
Expense
|
|
Rate
|
|
|
|
(in
thousands except percentage data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Earning Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits in other banks and
federal funds sold
|
|
$
|
400
|
|
$
|
12
|
|
2.88
|
%
|
$
|
639
|
|
$
|
28
|
|
4.39
|
%
|
$
|
317
|
|
$
|
18
|
|
5.57
|
%
|
Securities (taxable)(3)
|
|
180,562
|
|
10,519
|
|
5.83
|
|
153,912
|
|
8,423
|
|
5.47
|
|
156,527
|
|
7,781
|
|
4.97
|
|
Securities (tax-exempt)(1)
|
|
22,502
|
|
1,451
|
|
6.45
|
|
14,190
|
|
862
|
|
6.07
|
|
18,539
|
|
1,192
|
|
6.43
|
|
Loans(1)(2)
|
|
859,268
|
|
55,372
|
|
6.34
|
|
791,440
|
|
59,945
|
|
7.47
|
|
711,240
|
|
53,409
|
|
7.41
|
|
Total interest earning assets
|
|
1,062,732
|
|
67,354
|
|
6.23
|
|
960,181
|
|
69,258
|
|
7.11
|
|
886,623
|
|
62,400
|
|
6.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Bearing Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing demand deposits
|
|
238,144
|
|
4,637
|
|
1.95
|
|
222,335
|
|
6,398
|
|
2.88
|
|
222,385
|
|
5,945
|
|
2.67
|
|
Savings deposits
|
|
84,453
|
|
1,432
|
|
1.70
|
|
90,419
|
|
2,632
|
|
2.91
|
|
68,536
|
|
1,598
|
|
2.33
|
|
Time deposits
|
|
351,011
|
|
14,805
|
|
4.22
|
|
322,235
|
|
15,398
|
|
4.78
|
|
288,644
|
|
12,598
|
|
4.36
|
|
Total interest bearing deposits
|
|
673,608
|
|
20,874
|
|
3.10
|
|
634,989
|
|
24,428
|
|
3.85
|
|
579,565
|
|
20,141
|
|
3.48
|
|
Short-term borrowings
|
|
76,307
|
|
1,826
|
|
2.35
|
|
76,805
|
|
3,940
|
|
5.06
|
|
67,192
|
|
3,507
|
|
5.15
|
|
Repurchase agreements
|
|
120,615
|
|
4,128
|
|
3.37
|
|
95,178
|
|
3,906
|
|
4.05
|
|
71,809
|
|
2,847
|
|
3.96
|
|
Long-term borrowings
|
|
58,811
|
|
2,372
|
|
3.97
|
|
17,716
|
|
663
|
|
3.69
|
|
34,038
|
|
1,174
|
|
3.40
|
|
Junior Subordinated Debt
|
|
20,163
|
|
1,437
|
|
7.13
|
|
20,312
|
|
1,898
|
|
9.34
|
|
20,150
|
|
1,852
|
|
9.19
|
|
Total interest bearing liabilities
|
|
949,504
|
|
30,637
|
|
3.23
|
|
845,000
|
|
34,835
|
|
4.12
|
|
772,754
|
|
29,521
|
|
3.82
|
|
Noninterest bearing deposits
|
|
$
|
107,642
|
|
|
|
|
|
$
|
106,782
|
|
|
|
|
|
$
|
111,759
|
|
|
|
|
|
Net interest margin
|
|
|
|
$
|
36,717
|
|
3.45
|
%
|
|
|
$
|
34,423
|
|
3.59
|
%
|
|
|
$
|
32,879
|
|
3.71
|
%
|
(1)
Interest Income and rates on loans and investment
securities are reported on a tax-equivalent basis using a tax rate of 34%.
29
Table
of Contents
(2)
Held for Sale and
Non-accrual loans have been included in
average loan balances.
(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-K.
Tax-equivalent net
interest income increased to $36.7 million or 6.7% for the year ended December 31,
2008, compared to $34.4 million for 2007.
The increase in tax-equivalent interest income during 2008 was primarily
the result of an increase in average earning assets, due mainly to strong
commercial loan growth and an increase in available for sale security
investment yields as a result of the $64.1 million balance sheet restructuring
in early 2007. Average loans increased
by $67.8 million or 8.6% from 2007 to 2008.
Management attributes this increase in organic commercial loan growth to
a well established market in the Reading area and continued penetration into
the Philadelphia market through successful marketing initiatives.
Tax-equivalent net
interest income increased to $34.4 million or 4.7% for the year ended December 31,
2007, compared to $32.9 million for 2006.
The increase in tax-equivalent interest income during 2007 was primarily
the result of an increase in average earning assets, due mainly to strong
commercial loan growth and an increase in available for sale security
investment yields as a result of the $64.1 million balance sheet restructuring.
Average loans increased by $80.2 million or 11.3% from 2006 to 2007. Management attributes the increase in organic
commercial loan growth to a well established market in the Reading area and
continued penetration into the Philadelphia market through successful marketing
initiatives.
Interest expense
decreased during 2008 along with an increase in the overall growth in funding
sources. The overall cost of funds
decreased from 4.12% in 2007 to 3.23% in 2008.
Interest bearing deposit rates decreased from 3.85% in 2007 to 3.10% in
2008. The decrease in interest-bearing deposit
rates was the result of managements disciplined approach to deposit pricing in
response to the decrease in short-term interest rates. Average interest bearing deposits increased
$38.6 million or 6.1% from 2007 to 2008 due primarily to growth in time
deposits. Total average short and long
term borrowings grew by $66.0 million and, combined with the growth in interest
bearing deposits, provided all of the funding needed for the $102.8 million in
average loan and investment security growth.
Average balances for federal funds purchased and repurchase agreements
for the year 2008 were $76.3 million and $120.6 million, respectively, compared
to average balances for federal funds purchased and repurchase agreements for
the year 2007 of $76.8 million and $95.2 million, respectively. Average rates paid for federal funds
purchased and repurchase agreements for the year 2008 were 2.35% and 3.37%,
respectively compared to average rates paid for federal funds purchased and
repurchase agreements for the year 2007 of 5.06% and 4.05%, respectively. Average long-term borrowings increased $41.1
million or 232.0% from 2007 to 2008.
Interest expense
increased during 2007 along with the overall growth in funding sources. The overall cost of funds increased from
3.82% in 2006 to 4.12% in 2007. Interest
bearing deposit rates increased from 3.48% in 2006 to 3.85% in 2007. The increase in interest-bearing deposit
rates was the result of both management pricing strategy as well as the effect
of longer-term certificates of deposit that matured during the year and
repriced at higher rates. Average
interest bearing deposits increased $55.4 million or 9.6% from 2006 to 2007 due
primarily to strong organic growth in business solutions savings and escrow
deposits and time deposits. Total
average interest-bearing funding grew by $16.7 million and, combined with the
growth in interest bearing deposits, provided all of the funding needed for the
$72.7 million in average loan and investment security growth. Average balances for federal funds purchased
and repurchase agreements for the year 2007 were $76.8 million and $95.2
million, respectively, compared to average balances for federal funds purchased
and repurchase agreements for the year 2006 of $67.2 million and $71.8 million,
respectively. Average rates paid for
federal funds purchased and repurchase agreements for the year 2007 were 5.06%
and 4.05%, respectively compared to average rates paid for federal funds
purchased and repurchase agreements for the year 2006 of 5.15% and 3.96%,
respectively. Average long-term
borrowings decreased $16.3 million or 48.0% from 2006 to 2007.
In 2008, as a result of
an increase in the volume of commercial loans originated offset by a decrease
in commercial loan yields along with an increased yield in the available for
sale investment portfolio, tax-equivalent net interest income increased as a
result of a decrease in overall cost of funds.
Tax-equivalent net interest margin decreased to 3.45% in 2008 from 3.59%
in 2007.
In 2007, as a result of
an increase in the volume of commercial loans originated and an increase in the
yield on available for sale investments, tax-equivalent net interest income was
able to increase despite rising cost of funds.
Tax-equivalent net interest margin, however, decreased to 3.59% in 2007
from 3.71% in 2006.
30
Table of Contents
Changes
in Interest Income and Interest Expense
The following table sets
forth certain information regarding changes in interest income and interest
expense of the Company for the periods indicated. For each category of interest-earning asset
and interest-bearing liability, information is provided on changes attributable
to (1) changes in volume (period to period changes in average balance
multiplied by beginning rate), and (2) changes in rate (period to period
changes in rate multiplied by beginning average balance).
Analysis
of Changes in Interest Income/Expense (1) (2) (3) (4)
|
|
2008/2007
Increase (Decrease)
|
|
|
|
|
|
Due
to Change in
|
|
2007/2006
Increase (Decrease)
|
|
|
|
(As
Restated)
|
|
Due
to Change in
|
|
|
|
Volume
|
|
Rate
|
|
Net
|
|
Volume
|
|
Rate
|
|
Net
|
|
|
|
(in
thousands)
|
|
Interest-bearing deposits in other banks and
federal funds sold
|
|
$
|
(6
|
)
|
$
|
(10
|
)
|
(16
|
)
|
$
|
19
|
|
$
|
(9
|
)
|
10
|
|
Securities (taxable)
|
|
1,714
|
|
382
|
|
2,096
|
|
(298
|
)
|
940
|
|
642
|
|
Securities (tax-exempt)
|
|
535
|
|
54
|
|
589
|
|
(279
|
)
|
(51
|
)
|
(330
|
)
|
Loans
|
|
4,310
|
|
(8,883
|
)
|
(4,573
|
)
|
5,895
|
|
641
|
|
6,536
|
|
Total Interest Income
|
|
6,553
|
|
(8,457
|
)
|
(1,904
|
)
|
5,337
|
|
1,521
|
|
6,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowed funds
|
|
(33
|
)
|
(2,081
|
)
|
(2,114
|
)
|
501
|
|
(68
|
)
|
433
|
|
Repurchase agreements
|
|
983
|
|
(761
|
)
|
222
|
|
915
|
|
144
|
|
1,059
|
|
Long-term borrowed funds
|
|
1,659
|
|
50
|
|
1,709
|
|
(563
|
)
|
52
|
|
(511
|
)
|
Junior Subordinated Debt
|
|
(14
|
)
|
(447
|
)
|
(461
|
)
|
17
|
|
29
|
|
46
|
|
Interest-bearing demand deposits
|
|
285
|
|
(2,046
|
)
|
(1,761
|
)
|
111
|
|
342
|
|
453
|
|
Savings deposits
|
|
(93
|
)
|
(1,107
|
)
|
(1,200
|
)
|
430
|
|
604
|
|
1,034
|
|
Time deposits
|
|
1,138
|
|
(1,731
|
)
|
(593
|
)
|
1,478
|
|
1,322
|
|
2,800
|
|
Total Interest Expense
|
|
3,925
|
|
(8,123
|
)
|
(4,198
|
)
|
2,889
|
|
2,425
|
|
5,314
|
|
Increase (Decrease) in Net Interest Income
|
|
$
|
2,628
|
|
$
|
(334
|
)
|
$
|
2,294
|
|
$
|
2,448
|
|
$
|
(904
|
)
|
$
|
1,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Loan fees have been included in the change in interest
income totals presented. Non-accrual loans have been included in average loan
balances.
(2)
Changes due to both volume and rates have been allocated
in proportion to the relationship of the dollar amount change in each.
(3)
Interest income on loans and securities is presented
on a taxable equivalent basis.
(4)
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-K.
31
Table of Contents
Other
Income
The following table
details non-interest income as follows:
|
|
2008
versus 2007
|
|
|
|
|
|
|
|
(As
Restated)
|
|
|
|
2007
versus 2006
|
|
|
|
|
|
Increase/
|
|
|
|
|
|
Increase/
|
|
|
|
|
|
|
|
2008
|
|
Decrease
|
|
%
|
|
2007
|
|
Decrease
|
|
%
|
|
2006
|
|
|
|
(Dollars
in thousands)
|
|
Customer service fees
|
|
$
|
2,964
|
|
$
|
307
|
|
11.6
|
|
$
|
2,657
|
|
$
|
(32
|
)
|
(1.2
|
)
|
$
|
2,689
|
|
Mortgage banking activities, net
|
|
897
|
|
(997
|
)
|
(52.6
|
)
|
1,894
|
|
(1,680
|
)
|
(47.0
|
)
|
3,574
|
|
Commissions and fees from insurance sales
|
|
11,284
|
|
(78
|
)
|
(0.7
|
)
|
11,362
|
|
93
|
|
0.8
|
|
11,269
|
|
Broker and investment advisory commissions and fees
|
|
813
|
|
(73
|
)
|
(8.2
|
)
|
886
|
|
165
|
|
22.9
|
|
721
|
|
Gain on sale of loans
|
|
47
|
|
(117
|
)
|
(71.3
|
)
|
164
|
|
62
|
|
60.8
|
|
102
|
|
Earnings on investment in life insurance
|
|
690
|
|
(116
|
)
|
(14.4
|
)
|
806
|
|
246
|
|
43.9
|
|
560
|
|
Other income
|
|
2,514
|
|
112
|
|
4.7
|
|
2,402
|
|
374
|
|
18.4
|
|
2,028
|
|
Net realized (losses) gains on sale of securities
|
|
(7,230
|
)
|
(4,906
|
)
|
211.1
|
|
(2,324
|
)
|
(2,839
|
)
|
(551.3
|
)
|
515
|
|
Total
|
|
$
|
11,979
|
|
$
|
(5,868
|
)
|
(32.9
|
)
|
$
|
17,847
|
|
$
|
(3,611
|
)
|
(16.8
|
)
|
$
|
21,458
|
|
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-K.
The Companys primary
source of other income for 2008 was commissions and other revenue generated
through sales of insurance products through its insurance subsidiary, VIST
Insurance. Revenues from insurance
operations totaled $11.3 million in 2008 compared to $11.4 million in 2007 and
$11.3 million in 2006. The decrease in
revenue from insurance operations was due mainly to a decrease in contingency
income received. Revenues from broker
and investment advisory commissions generated through VIST Capital, the Companys
investment subsidiary, decreased to $813,000 in 2008 from $886,000 in 2007 due
to a decrease in investment and advisory services. Also, annuity and other insurance commissions
generated by VIST Capital of $113,000, $130,000 and $151,000 are included in
commissions and fees from insurance sales for the years 2008, 2007 and 2006,
respectively.
Revenues from VIST
Insurance operations totaled $11.4 million in 2007 compared to $11.3 million in
2006. Revenues from broker and
investment advisory commissions generated through VIST Capital, the Companys
investment subsidiary, decreased to $886,000 in 2007 from $721,000 in 2006 due
to an increase in investment and advisory services.
The Company also relies
on several other sources for its other income, including sales of newly
originated mortgage loans and service charges on deposit accounts. The income recognized from mortgage banking
activities was $0.9 million in 2008 and $1.9 million in 2007. The decrease in mortgage banking revenue from
2007 to 2008 is mainly attributable to a decrease in the volume of mortgage
loan originations sold into the secondary mortgage market through the Companys
mortgage banking division, VIST Mortgage.
The decrease in mortgage loan originations and sales is related to a
general slowdown in the housing market as a result of the industry wide effects
of the ongoing sub-prime credit crisis.
VIST Mortgage does not underwrite any sub-prime loans.
The income recognized
from mortgage banking activities was $1.9 million in 2007 and $3.6 million in
2006. The decrease in mortgage banking
revenue from 2006 to 2007 is attributable to a decrease in the volume of
mortgage loan originations sold into the secondary mortgage market through the
Companys mortgage banking division, VIST Mortgage volumes of mortgage loans
originated and sold into the secondary mortgage market.
The income recognized
from customer service fees was approximately $3.0 million, $2.7 million and
$2.7 million for the years ended 2008, 2007 and 2006, respectively. The changes in income from customer service
fees reflect an expanded customer base, new products and services and an annual
review of the fee pricing. During 2008,
the Company completed a thorough review of its service charge routines. As a result of its service charge analysis,
the Company was able to increase service charge revenue. The increase in service charge revenue resulted
primarily from increases in commercial account analysis fees, uncollected funds
charges and non-sufficient funds charges.
Also included in other
income are net gains on other loan sales of $47,000 in 2008, $164,000 in 2007
and $102,000 in 2006 from the sale of $0.7 million, $2.0 million and $1.6
million, respectively, of fixed and adjustable rate portfolio residential
mortgage loans, SBA loans and USDA loans.
32
Table
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Earnings on investment in
life insurance represent the change in cash value of Bank Owned Life Insurance
(BOLI) policies. The BOLI policies of
the Company are designed to offset the costs of employee benefit plans and to
enhance tax-free earnings. The
investment in BOLI totaled $18.6 million, $17.9 million and $17.2 million at December 31,
2008, 2007 and 2006. In 2006, the Bank
purchased an additional $5 million in BOLI.
Earnings on BOLI are affected by fluctuations in interest rates.
Other income includes
dividend income from Federal Home Loan Bank stock, market value adjustments for
both junior subordinated debt and interest rate swaps, debit card network
interchange income, merchant fee income, SBA service fee income and safe
deposit box rentals, as well as, other miscellaneous income items. The most significant volume of income in this
category is derived from ATM surcharge fees and interchange fees from the Banks
ATM network and fees from debit card transactions. These fees totaled $1.1 million in 2008 which
represents a 13.2% increase over 2007.
Throughout the year, the Bank has initiated marketing campaigns to encourage
its customers to use debit cards as a convenient alternative to traditional
check transactions. ATM surcharge fees
and interchange fees from the Banks ATM network and fees from debit card
transactions totaled $1.0 million in 2007 which represents an 11.0% increase
over 2006.
Net securities losses
totaled $7,230,000 for 2008 compared to net security losses of $2,324,000 for
2007. The net securities losses for 2008
were primarily due to the loss on the sale of approximately $7.3 million in
perpetual preferred stock associated with the federal takeover of government
sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, placed into
conservatorship by the Federal Housing Finance Agency and the U.S.
Treasury. Net securities losses totaled
$2,324,000 for 2007 compared to net security gains of $515,000 for 2006. The net securities losses for 2007 were
primarily due to the sale of $64.1 million in lower-yielding available for sale
securities as part of a balance sheet restructuring completed in the first
quarter of 2007, which resulted in a pre-tax loss of $2,493,000.
Other
Expenses
The following table
details non-interest expense as follows:
|
|
2008
versus 2007
|
|
|
|
2007
versus 2006
|
|
|
|
|
|
Increase/
|
|
|
|
|
|
Increase/
|
|
|
|
|
|
|
|
2008
|
|
Decrease
|
|
%
|
|
2007
|
|
Decrease
|
|
%
|
|
2006
|
|
|
|
(Dollars
in thousands)
|
|
Salaries and employee benefits
|
|
$
|
22,078
|
|
$
|
517
|
|
2.4
|
|
$
|
21,561
|
|
$
|
(581
|
)
|
(2.6
|
)
|
$
|
22,142
|
|
Occupancy expense
|
|
4,707
|
|
398
|
|
9.2
|
|
4,309
|
|
(156
|
)
|
(3.5
|
)
|
4,465
|
|
Equipment expense
|
|
2,690
|
|
145
|
|
5.7
|
|
2,545
|
|
(96
|
)
|
(3.6
|
)
|
2,641
|
|
Marketing and advertising expense
|
|
1,635
|
|
(37
|
)
|
(2.2
|
)
|
1,672
|
|
318
|
|
23.5
|
|
1,354
|
|
Amortization of indentifiable intangible assets
|
|
629
|
|
7
|
|
1.1
|
|
622
|
|
(14
|
)
|
(2.2
|
)
|
636
|
|
Professional services
|
|
2,594
|
|
759
|
|
41.4
|
|
1,835
|
|
578
|
|
46.0
|
|
1,257
|
|
Outside processing services
|
|
3,334
|
|
131
|
|
4.1
|
|
3,203
|
|
222
|
|
7.4
|
|
2,981
|
|
Insurance expense
|
|
1,262
|
|
648
|
|
105.5
|
|
614
|
|
114
|
|
22.8
|
|
500
|
|
Other expense
|
|
4,709
|
|
196
|
|
4.3
|
|
4,513
|
|
251
|
|
5.9
|
|
4,262
|
|
Total
|
|
$
|
43,638
|
|
$
|
2,764
|
|
6.8
|
|
$
|
40,874
|
|
$
|
636
|
|
1.6
|
|
$
|
40,238
|
|
Non-interest expense
consists primarily of costs associated with personnel, occupancy and equipment,
data processing, marketing and professional fees.
The Companys
non-interest expense for the year ended December 31, 2008 totaled $43.6
million, representing an increase of $2.8 million or 6.8% as compared to
2007. Salaries and employee benefits, the
largest component of non-interest expense, increased $517,000 or 2.4% from 2007
to 2008. Full-time equivalent (FTE)
employees for the Company are 293 and 317 for the years ended December 31,
2008 and 2007, respectively. The
increase in salaries and employee benefits from 2007 to 2008 was primarily
attributed to merit increases and increased health benefits costs. The decrease in FTE employees from 2007 to
2008 was primarily attributed to a decrease in operational staff as a result of
improved efficiencies through the implementation of new programs such as Check
21. Total commissions paid for the year
ended December 31, 2008 and 2007 were $1.6 million and $1.6 million,
respectively.
33
Table
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The Companys
non-interest expense for the year ended December 31, 2007 totaled $40.9
million, representing an increase of $636,000 or 1.6% as compared to 2006. Salaries and employee benefits decreased
$581,000 or 2.6% from 2006 to 2007. The
decrease in salaries and employee benefits from 2006 to 2007 was primarily the
result of a reduction in staff due to a corporate-wide reorganization plan and
a reduction of commissions paid on revenue generated from sales of insurance
products through VIST Insurance and wealth management products through VIST
Capital, as well as, higher benefits costs consistent with industry
trends. Full-time equivalent (FTE)
employees for the Company are 317 and 323 for the years ended December 31,
2007 and 2006, respectively.
Total occupancy expense
and equipment expense decreased 7.9% in 2008 compared to 2007 primarily due to
an increase in building lease expense including a lease termination for a
planned branch consolidation and an increase in general building repairs and
maintenance.
Total occupancy expense
and equipment expense decreased 3.5% in 2007 compared to 2006 primarily due to
a reduction in general building repairs and maintenance and a termination of
leases for VIST Insurances Langhorne, PA office and VIST Mortgages Lancaster
office which were no longer needed due to efficiencies gained through systems
and personnel reorganizations.
Total marketing expense
decreased $37,000 or 2.2% in 2008 compared to 2007 primarily due to a decrease
in re-branding initiative expenses of changing the Companys name to VIST
Financial Corp. A significant portion of these expenses occurred in 2007. The new Company name and logo increased
visibility for the Company, setting the stage for continued commercial loan and
core franchise growth in the Reading and Philadelphia markets. The decrease is
also due to reduced costs for market research and media advertisement.
Total marketing expense
increased $318,000 or 23.5% in 2007 compared to 2006 primarily due to the
re-branding initiative changing the Companys name to VIST Financial Corp. The Company continues its marketing campaigns
for the introduction of new products and services, as well as new marketing
campaigns targeting the greater Philadelphia region. The re-branding gives the Company a more
cohesive and strategic branding approach designed to focus on our overall
portfolio of banking, insurance and wealth management products and services.
Total amortization of
identifiable intangible assets increased $7,000 or 1.1% in 2008 as compared to
2007 due to the Fisher Benefits Consulting acquisition, total outside
processing services increased $131,000 or 4.1% in 2008 as compared to 2007 due
to an increase in network fees and computer services and total insurance
expense increased $648,000 or 105.5% in 2008 as compared to 2007 due to an
increase in FDIC deposit insurance assessments.
Total amortization of
identifiable intangible assets decreased $14,000 or 2.2% in 2007 as compared to
2006, total outside processing services increased $222,000 or 7.4% in 2007 as
compared to 2006 and total insurance expense increased $114,000 or 22.8% in
2007 as compared to 2006. The increase in
outside processing services is due primarily to continuing the implementation
of various projects utilizing our core processing system. The increase in insurance expense is due
primarily to general increases in insurance policy premiums.
Total professional
services increased $759,000 or 41.4% in 2008 as compared to 2007. The increase in professional services is due
primarily to an increase in legal fees associated with the Companys name
change to VIST Financial Corp. and general corporate counsel, costs associated
with the outsourcing of the internal audit function and other consulting,
accounting and tax services and general Company business.
Total professional
services and outside processing services increased $578,000 or 46.0% in 2007 as
compared to 2006. The increase in
professional services is due primarily to an increase in legal and consultative
expenses for the Companys re-branding initiative, general Company business
initiatives, employment contract renewals and accounting and tax services.
Other expense includes
utility expense, postage expense, stationary and supplies expense and OREO and
foreclosure expense, as well as, other miscellaneous expense items. These costs totaled $4.7 million in 2008
which represents a 4.3% increase over 2007.
Increases in other expenses were primarily attributable to an increase
in collections costs and OREO expenses.
Other expense includes
utility expense, postage expense, stationary and supplies expense and OREO and
foreclosure expense, as well as, other miscellaneous expense items. These costs totaled $4.5 million in 2007
which represents a 5.9% increase over 2006.
Increases in other expenses were primarily attributable to purchase
34
Table
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accounting amortization,
an increase in shares tax expense as a result of an increase in the Banks
equity and an increase in master escrow fees associated with business solutions
escrow accounts.
Income
Taxes
The effective income tax
rate for the Company for the years ended December 31, 2008, 2007 and 2006
was 143.7%, 19.0% and 23.7%, respectively.
The effective tax rate for 2008 increased from 2007 and 2006 primarily
due to the increase in the income tax benefit resulting from an increase in the
net loss before taxes. Included in the
income tax provision is a federal tax benefit from our $5.0 million investment
in an affordable housing, corporate tax credit limited partnership of $600,000,
respectively, for each of the years ended December 31, 2008, 2007 and
2006.
Financial
Condition
The Companys total
assets at December 31, 2008 and 2007 were $1.2 billion and $1.1 billion,
respectively.
Cash and
Securities Portfolio
Cash and balances due
from banks decreased to $19.3 million at December 31, 2008 from $25.8
million at December 31, 2007.
The securities portfolio
increased 21.2% to $229.7 million at December 31, 2008, from $189.6
million at December 31, 2007 primarily due to investments in higher
yielding available for sale securities.
Securities are used to supplement loan growth as necessary, to generate
interest and dividend income, to manage interest rate risk, and to provide
pledging and liquidity. To accomplish
these ends, most of the purchases in the portfolio during 2008 and 2007 were of
mortgage-backed securities issued by US Government agencies.
The securities portfolio
included a net unrealized loss on available for sale securities of $11.9
million and $1.7 million at December 31, 2008 and 2007, respectively. In addition, net unrealized losses of $1.1
million were present in the held to maturity securities at December 31,
2008. Changes in longer-termed treasury interest rates, underlying collateral
and credit concerns and dislocation and illiquidity in the current market were
primarily responsible for the decrease in the fair market value of the
securities.
Debt securities that
management has the positive ability and intent to hold to maturity are
classified as held-to-maturity and recorded at amortized cost. Securities classified as available for sale
are those securities that the Company intends to hold for an indefinite period
of time but not necessarily to maturity.
Any decision to sell a security classified as available for sale would
be based on various factors, including significant movement in interest rates,
changes in maturity mix of the Companys assets and liabilities, liquidity
needs, regulatory capital considerations and other similar factors. Securities available for sale are carried at
fair value. Unrealized gains and losses
are reported in other comprehensive income or loss, net of the related deferred
tax effect. Realized gains or losses,
determined on the basis of the cost of the specific securities sold, are
included in earnings. Purchased premiums
and discounts are recognized in interest income using a method which
approximates the interest method over the terms of the securities. Declines in the fair value of
held-to-maturity and available-for-sale securities below their cost that are
deemed to be other than temporary are reflected in earnings as realized
losses. 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.
Federal Home Loan Bank Stock
The Bank is a member of
the Federal Home Loan Bank of Pittsburgh (the FHLB), which is one of 12
regional Federal Home Loan Banks. Each
Federal Home Loan Bank serves as a reserve or central bank for its members
within its assigned region. It is funded
primarily from funds deposited by member institutions and proceeds from the
sale of consolidated obligations of the Federal Home Loan Bank System. It makes loans to members (i.e., advances) in
accordance with policies and procedures established by the board of directors
of the Federal Home Loan Bank.
35
Table of Contents
Loans
Loans increased to $886.3
million at December 31, 2008 from $821.0 million at December 31,
2007, an increase of $65.3 million or 8.0%.
Management has targeted the commercial loan portfolio as a key to the
Companys continuing growth.
Specifically, the Company has a commercial lending focus within the
Reading and Philadelphia market areas targeting higher yielding commercial
loans made to small and medium sized businesses. Through a strong commercial lending footprint
in the Reading market and through acquisition and the expansion of the
commercial lending staff in the Philadelphia market, the year over year growth
in commercial loans originated underscores the commercial customer focus as the
commercial loan portfolio increased to $590.2 million at December 31,
2008, from $530.7 million at December 31, 2007, an increase of $59.5
million or 11.2%.
Loans secured by 1 to 4
family residential real estate decreased to $185.9 million at December 31,
2008, from $198.6 million as of December 31, 2007, an increase of $12.7
million or 6.4%. Loans secured by
multi-family residential real estate increased to $34.9 million at December 31,
2008, from $33.5 million as of December 31, 2007, an increase of $1.4
million or 4.2%. The overall decrease in
residential real estate loans is attributable to a decrease in the volume of
mortgage loan originations generated and sold into the secondary mortgage
market through the Companys mortgage banking division, VIST Mortgage.
Home equity lending
products increased to $76.1 million at December 31, 2008, from $59.1
million as of December 31, 2007.
Consumer demand for these types of loans increased in 2008. Although the Companys focus primarily
centered on the commercial customer, management remained disciplined in its
pricing of consumer loans. Despite the
numerous economic challenges faced in 2008, the Company was able to increase
our outstanding balances through the successful marketing of its Equilock
consumer loan product which carries both a fixed and variable component
allowing the consumer to lock and unlock the loan at the prevailing interest
rate.
The loans held for sale
category is composed of $2.3 million of mortgage loans committed for sale to
other institutions and the secondary market as of December 31, 2008 versus
$3.2 million as of December 31, 2007.
The decrease in loans held for sale is primarily due to decreased loan
origination and sale activity through VIST Mortgage.
The sales of residential
real estate loans in the secondary market reflects the Companys strategy of
de-emphasizing the retention of long-term, fixed rate loans in the portfolio
utilizing these loans sales to generate fees, improve interest-rate risk and
fund growth in higher yielding assets.
Premises
and Equipment
Premises and equipment,
net of accumulated depreciation and amortization, decreased to $6.6 million for
2008 from $6.9 million in 2007.
Purchases of premises and equipment totaled $1.2 million in 2008 and
$1.5 million in 2007. During 2008, as a
result of the Companys re-branding initiative, the Company purchased new
signage totaling approximately $595,000.
During 2007, the Company purchased a corporate-wide telephone
system. The total cost for the telephone
system was approximately $673,000. This
new system allows for seamless communication between the Companys banking,
insurance and wealth management affiliates.
Depreciation expense and amortization of leasehold improvements totaled
$1.5 million in 2008 and $1.5 million in 2007.
Goodwill
and Identifiable Intangible Assets
Goodwill increased to
$39.7 million for the years ended December 31, 2008 from $39.2 million for
2007. During 2008, the Company recorded
goodwill of $320,000 representing contingent payments as part of the VIST
Insurance asset purchase agreement. In
addition, $223,000 in goodwill was added due to the Fisher Benefits Consulting
acquisition in 2008. Identifiable
intangible assets increased to $4.8 million from $3.9 million for the years
ended December 31, 2008 and 2007, respectively. The increase in identifiable intangible
assets is due mainly to the acquisition of Fisher Benefits Consulting in 2008.
Amortization of identifiable intangible assets was $629,000 in 2008 and
$622,000 in 2007.
Bank
Owned Life Insurance
Bank owned life insurance
increased $695,000 to $18.6 million at December 31, 2008 from $17.9 million
at December 31, 2007. The increase
in bank owned life insurance is due primarily to increased earnings on the cash
surrender value of the underlying policies.
36
Table of Contents
Deposits
and Borrowings
Total deposits at December 31,
2008 and 2007 were $850.6 million and $712.6 million, respectively.
Non-interest bearing
deposits decreased to $108.6 million at December 31, 2008, from $109.7
million at December 31, 2007, a decrease of $1.1 million or 1.0%. The decrease in non-interest bearing deposits
is primarily due to a decrease in non-interest bearing personal accounts. Management continues its efforts to promote
growth in these types of deposits, such as offering a free checking product, as
a method to help reduce the overall cost of the Companys funds. Interest bearing deposits increased by $139.0
million or 23.1%, from $602.9 million at December 31, 2007 to $742.0
million at December 31, 2008. The
increase in interest bearing deposits is due primarily to an increase in
interest bearing core deposits including time 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.
Borrowed funds from
various sources are generally used to supplement deposit growth. Federal funds purchased from the Federal Home
Loan Bank (FHLB) were $53.4 million at
December 31, 2008, and $118.2 million at December 31, 2007. This decrease is primarily the result of an
increase in deposits. Securities sold
under agreements to repurchase were $120.1 million at December 31, 2008
and $110.9 at December 31, 2007. Increases in commercial loan demand and
investment securities were funded primarily by interest-bearing deposits. Long-term borrowings consisting of advances
from the FHLB totaling $50.0 million and $45.0 million at December 31,
2008 and 2007, respectively, and long-term securities sold under agreements to
repurchase totaling $100.0 million and $85.0 million at December 31, 2008
and 2007, respectively..
Shareholders
Equity
Total equity, including
common and preferred stock, surplus, retained earnings, treasury stock and
accumulated other comprehensive loss, increased by $17.0 million or 16.0% to
$123.6 million at December 31, 2008 from $106.6 million at December 31,
2007. The increase for 2008 is primarily
the result of a Series A 5% cumulative preferred stock issuance of $25
million offset by cash dividends declared of $2.8 million and a $6.7 million
increase in accumulated other comprehensive loss.
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 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. Under ARRA, the Series A
Preferred Stock may be redeemed at any time following consultation by the
Companys primary bank regulator and Treasury, not withstanding the terms of
the original transaction documents.
Under FAQs 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.
Prior to the earlier of
the third anniversary date of the issuance of the Series A Preferred Stock
(December 19, 2011) or the date on which the Series A Preferred Stock
have been redeemed in whole or the Treasury has transferred all of the Series A
Preferred Stock to third parties which are not affiliates of the Treasury, the
Company can not increase its common stock dividend from the last quarterly cash
dividend per share ($0.10) declared on the common stock prior to October 14,
2008 without the consent of the Treasury,
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. If the Company receives aggregate
gross cash proceeds of not less than $25,000,000 from qualified equity
offerings on or prior to December 31, 2009, the number of shares of common
stock issuable pursuant to exercise of the Warrant will be reduced by one half
of the original number of shares underlying the Warrant. In addition, in the event that the Company
redeems the Series A Preferred Stock, the Company can repurchase the
warrant at fair value as defined in the investment agreement with Treasury.
37
Table
of Contents
Total shareholders
equity includes accumulated other comprehensive loss, which includes an
adjustment for the fair value of the Companys securities portfolio. This amount attempts to identify the impact
to equity in the unlikely event that the Companys entire securities portfolio
would be liquidated under current economic conditions. The amounts and types of securities held by
the Company at the end of 2008, combined with current interest rates, resulted
in a decrease in equity, net of taxes, of $6.7 million. This compares with an increase to equity, net
of taxes, of $1.4 million during 2007.
Interest
Rate Sensitivity
Through the years, the
banking industry has adapted to an environment in which interest rates have
fluctuated dramatically and in which depositors have been provided with liquid,
rate sensitive investment options. The industry utilizes a process known as
asset/liability management as a means of managing this adaptation.
Asset/liability
management is intended to provide for adequate liquidity and interest rate
sensitivity by analyzing and understanding the underlying cash flow structures
of interest rate sensitive assets and liabilities and coordinating maturities
and repricing characteristics on those assets and liabilities.
Interest rate risk
management involves managing the extent to which interest-sensitive assets and
interest-sensitive liabilities are matched.
Interest rate sensitivity is the relationship between market interest
rates and earnings volatility due to the repricing characteristics of assets
and liabilities. The Companys net
interest income is affected by changes in the level of market interest rates.
In order to maintain consistent earnings performance, the Company seeks to
manage, to the extent possible, the repricing characteristics of its assets and
liabilities.
One major objective of
the Company when managing the rate sensitivity of its assets and liabilities is
to stabilize net interest income. The
management of and authority to assume interest rate risk is the responsibility
of the Companys Asset/Liability Committee (ALCO), which is comprised of
senior management and Board members. The
ALCO meets quarterly to monitor the ratio of interest sensitive assets to
interest sensitive liabilities. The
process to review interest rate risk management is a regular part of management
of the Company. In addition, there is an
annual process to review the interest rate risk policy with the Board of
Directors which includes limits on the impact to earnings and value from shifts
in interest rates.
To manage the interest
rate sensitivity position, an asset/liability model called gap analysis is
used to monitor the difference in the volume of the Companys interest
sensitive assets and liabilities that mature or reprice within given
periods. A positive gap (asset
sensitive) indicates that more assets reprice during a given period compared to
liabilities, while a negative gap (liability sensitive) has the opposite
effect.
During October 2002,
the Company entered into its first 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.
Interest rate caps are
generally used to limit the exposure from the repricing and maturity of
liabilities and to limit the exposure created by interest rate swaps. In June of 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 initial premium related to this interest rate cap was $102,000. At December 31, 2008 and 2007, the
carrying value and market value of the interest rate cap was approximately $0
and $3,000, respectively.
During September 2008,
the Company entered into two interest rate swap agreements with an aggregate
notional amount of $15 million. This
interest rate swap transaction involved the exchange of the Companys floating
rate interest rate payment on $15.0 million in floating rate junior
subordinated debt for a fixed rate interest payment without the exchange of the
underlying principal amount.
Also, the Company sells
fixed and adjustable rate residential mortgage loans to limit the interest rate
risk of holding longer-term assets on the balance sheet. In 2008, 2007 and 2006, the Company sold $0.7
million, $2.0 million and $1.7 million, respectively, of fixed and adjustable
rate loans.
At December 31,
2008, the Company was in a positive one-year cumulative gap position. Commercial adjustable rate loans increased
$35.3 million or 8.4% from $440.1 million at December 31, 2007 to $475.4
million at December 31, 2008.
Installment adjustable rate loans increased $12.1 million or 26.4% from
$45.8 million at
38
Table
of Contents
December 31, 2007 to
$57.9 million at December 31, 2008.
During 2008, the targeted short-term interest rate, as established by
the FRB, decreased which resulted in a decrease in the prime rate from 7.25% at
December 31, 2007, to 3.25% at December 31, 2008. The decrease in interest rates throughout
2008 contributed to margin compression as the Banks adjustable and variable
rate commercial and consumer loan portfolio tied to the prime rate repriced
downward. As a result of an ongoing
industry-wide credit crisis due to sub-prime lending, the refinance market
remains stagnant effectively extending the maturities for fixed rate loans and
investments. In order to augment the
funding needs for new commercial and consumer loan originations and investment
security purchases, interest-bearing deposits, which include interest-bearing
NOW and time deposits, increased $139.0 million or 23.1% from $602.9 million at
December 31, 2007 to $741.9 million at December 31, 2008. These factors contributed to the Companys
positive one-year cumulative gap position.
In 2009, the Company will continue its strategy to originate fixed and
adjustable rate commercial and consumer loans and use investment security cash
flows and interest-bearing and non-interest bearing deposits to rebalance
commercial borrowings to maintain a more neutral gap position.
Interest Sensitivity Gap at December 31,
2008
(As Restated)
|
|
|
|
3 to
|
|
|
|
|
|
|
|
0-3 months
|
|
12 months
|
|
1-3 years
|
|
over 3 years
|
|
|
|
(Dollars in thousands)
|
|
Interest
bearing deposits
|
|
$
|
320
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Securities(1),(2),(4)
|
|
78,069
|
|
72,753
|
|
42,160
|
|
36,743
|
|
Mortgage
loans held for sale
|
|
2,283
|
|
|
|
|
|
|
|
Loans(2)
|
|
367,259
|
|
172,631
|
|
213,258
|
|
125,033
|
|
Total
rate sensitive assets (RSA)
|
|
447,931
|
|
245,384
|
|
255,418
|
|
161,776
|
|
Interest
bearing deposits(3)
|
|
179,352
|
|
9,470
|
|
25,582
|
|
92,806
|
|
Time
deposits
|
|
144,456
|
|
173,934
|
|
85,732
|
|
30,623
|
|
Federal
funds purchased
|
|
53,424
|
|
|
|
|
|
|
|
Securities
sold under agreements to repurchase
|
|
65,086
|
|
35,000
|
|
15,000
|
|
5,000
|
|
Long-term
borrowed funds
|
|
|
|
30,000
|
|
20,000
|
|
|
|
Junior
subordinated debt
|
|
13,250
|
|
|
|
5,010
|
|
|
|
Total
rate sensitive liabilities (RSL)
|
|
455,568
|
|
248,404
|
|
151,324
|
|
128,429
|
|
Interest
rate swap
|
|
(21,325
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
Interest
sensitivity gap
|
|
$
|
13,688
|
|
$
|
(3,020
|
)
|
$
|
104,094
|
|
$
|
33,347
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
gap
|
|
13,688
|
|
10,668
|
|
114,762
|
|
148,109
|
|
RSA/RSL
|
|
1.0
|
%
|
1.0
|
%
|
1.7
|
%
|
1.3
|
%
|
(1)
Includes g
ross unrealized gains/losses on available
for sale securities.
(2)
Securities and loans are included in the earlier of
the period in which interest rates were next scheduled to adjust or the period
in which they are due.
(3)
Demand and savings accounts are generally subject to
immediate withdrawal. However,
management considers a certain amount of such accounts to be core accounts
having significantly longer effective maturities based on the retention
experiences of such deposits in changing interest rate environments.
(4)
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-K.
Certain shortcomings are
inherent in the method of analysis presented in the above table. Although certain assets and liabilities may
have similar maturities or periods of repricing, they may react in different
degrees to changes in market interest rates.
The interest rates on certain types of assets and liabilities may
fluctuate in advance of changes in market interest rates, while interest rates
on other types of assets and liabilities may lag behind changes in market
interest rates. Certain assets, such as
adjustable-rate mortgages, have features which restrict
39
Table
of Contents
changes in interest rates
on a short-term basis and over the life of the asset. In the event of a change in interest rates,
prepayment and early withdrawal levels may deviate significantly from those
assumed in calculating the table. The ability of many borrowers to service
their adjustable-rate debt may decrease in the event of an interest rate
increase.
The Company also measures
its near-term sensitivity to interest rate movements through simulations of the
effects of rate changes upon its net interest income. Net interest income simulations evaluate the
effect that interest rate changes have on the prepayment, repricing and
maturity attributes of the Companys interest earning assets and interest
bearing liabilities over the next twelve months. Interest rate movements of up 100, 200 and
300 basis points and down 100, 200 and 300 basis points, adjusted for activity
in the current and forecasted interest rate environment, were applied to the
Companys interest earning assets and interest bearing liabilities as of December 31,
2008. The results of these simulations
on net interest income for 2008 are as follows:
Simulated % change in 2008
|
|
Net Interest Income
|
|
Assumed Changes
|
|
|
|
in Interest Rates
|
|
% Change
|
|
-300
|
|
0.0
|
%
|
-200
|
|
0.5
|
%
|
-100
|
|
0.6
|
%
|
0
|
|
0.0
|
%
|
+100
|
|
-1.1
|
%
|
+200
|
|
-2.3
|
%
|
+300
|
|
-4.4
|
%
|
The Company also measures
its longer-term sensitivity to interest rate movements through simulations of
the effects of rate changes upon its economic value of shareholders
equity. Economic value of shareholders
equity simulations evaluate the effect that interest rate changes have on the
prepayment, repricing and maturity attributes of the Companys interest earning
assets and interest bearing liabilities over the life of each financial
instrument. Interest rate movements of
up 100, 200 and 300 basis points and down 100, 200 and 300 basis points,
adjusted for activity in the current and forecasted interest rate environment,
were applied to the Companys interest earning assets and interest bearing
liabilities as of December 31, 2008.
The results of these simulations on economic value of shareholders
equity for 2008 are as follows:
Simulated % change in Economic
|
|
Value of Shareholders equity
|
|
Assumed Changes
|
|
|
|
in Basis Points
|
|
% Change
|
|
-300
|
|
-10.9
|
%
|
-200
|
|
-7.5
|
%
|
-100
|
|
-3.0
|
%
|
0
|
|
0.0
|
%
|
+100
|
|
-0.6
|
%
|
+200
|
|
-0.9
|
%
|
+300
|
|
-2.4
|
%
|
Capital
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.
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.
40
Table
of Contents
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, to average quarterly assets less
intangible assets. The leverage ratio at
December 31, 2008 was 9.07% compared to 7.99% at December 31,
2007. The increase is primarily the
result of an increase in Tier 1 capital due to the issuance of Series A
Preferred Stock. For 2008 and 2007, the
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 capital consists of common shareholders equity less
intangible assets plus the junior subordinated debt, and Tier 2 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 capital. In
addition, federal banking regulating authorities have issued a final rule restricting
the Companys junior subordinated debt to 25% of Tier 1 capital. Amounts of junior subordinated debt in excess
of the 25% limit generally may be included in Tier 2 capital. The final rule provides a five-year
transition period ending March 31, 2009.
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 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. Under ARRA, the Series A
Preferred Stock may be redeemed at any time following consultation by the
Companys primary bank regulator and Treasury, not withstanding the terms of
the original transaction documents.
Under FAQs 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.
In December 2008,
the Company infused $10 million in capital into the Bank.
The following table sets
forth the Companys capital ratios.
41
Table
of Contents
|
|
At December 31,
|
|
|
|
2008
(As Restated)
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
Tier
1
|
|
|
|
|
|
Common
shareholders equity (including unrealized gains (losses) on securities)
|
|
$
|
123,629
|
|
$
|
106,592
|
|
Disallowed
intangible assets
|
|
(44,347
|
)
|
(42,793
|
)
|
Junior
subordinated debt
|
|
18,110
|
|
20,082
|
|
|
|
|
|
|
|
Tier
2
|
|
|
|
|
|
Allowable
portion of allowance for loan losses
|
|
8,124
|
|
7,264
|
|
Unrealized
losses on available for sale equity securities
|
|
7,330
|
|
375
|
|
Total
risk-based capital
|
|
$
|
112,846
|
|
$
|
91,520
|
|
Risk
adjusted assets (including off-balance sheet exposures)
|
|
$
|
883,949
|
|
$
|
823,056
|
|
|
|
|
|
|
|
Leverage
ratio
|
|
9.07
|
%
|
7.99
|
%
|
Tier
1 risk-based capital ratio
|
|
11.85
|
%
|
10.24
|
%
|
Total
risk-based capital ratio
|
|
12.77
|
%
|
11.12
|
%
|
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.
Liquidity
and Funds Management
Liquidity management
ensures that adequate funds will be available to meet anticipated and
unanticipated deposit withdrawals, debt servicing payments, investment
commitments, commercial and consumer loan demand and ongoing operating
expenses. Funding sources include
principal repayments on loans and investment securities, sales of loans, growth
in core deposits, short and long-term borrowings and repurchase
agreements. Regular loan payments are a
dependable source of funds, while the sale of loans and investment securities,
deposit flows, and loan prepayments are significantly influenced by general
economic conditions and level of interest rates.
At December 31,
2008, the Company maintained $19.3 million in cash and cash equivalents
primarily consisting of cash and due from banks. In addition, the Company had $226.7 million
in available for sale securities and $3.1 million in held to maturity
securities. Cash and investment
securities totaled $249.0 million which represented 20.3% of total assets at December 31,
2008 compared to 19.1% at December 31, 2007.
The Company considers its
primary source of liquidity to be its core deposit base, which includes
non-interest-bearing and interest-bearing demand deposits, savings, and time
deposits under $100,000. This funding
source has grown steadily over the years through organic growth and
acquisitions and consists of deposits from customers throughout the financial
center network. The Company will
continue to promote the growth of deposits through its financial center
offices. At December 31, 2008,
approximately 55.4% of the Companys assets were funded by core deposits
acquired within its market area. An
additional 10.1% of the assets were funded by the Companys equity. These two components provide a substantial
and stable source of funds.
Off-Balance
Sheet Arrangements
The Companys financial
statements do not reflect various off-balance sheet arrangements that are made
in the normal course of business, which may involve some liquidity risk. These commitments consist mainly of unfunded
loans and letters of credit made under the same standards as on-balance sheet
instruments. Unused commitments, at December 31,
2008 totaled $260.7 million. This
consisted of $59.1 million in commercial real estate and construction loans,
$48.9 million in home equity lines of credit, $138.2 million in unused business
lines of credit and $14.5 million in standby letters of credit. Because these instruments have fixed maturity
dates, and because many of them will expire without being drawn upon, they do
not generally present any significant liquidity risk to the Company. Any amounts actually drawn upon, management
believes, can be funded in the normal course
42
Table of Contents
of operations. The Company has no investment in or financial
relationship with any unconsolidated entities that are reasonably likely to
have a material effect on liquidity or the availability of capital resources.
Contractual
Obligations
The following table
represents the Companys aggregate contractual obligations to make future
payments.
|
|
December 31, 2008
|
|
|
|
(As Restated)
|
|
|
|
Less than
|
|
|
|
|
|
Over
|
|
|
|
|
|
1 year
|
|
1-3 Years
|
|
4-5 Years
|
|
5 Years
|
|
Total
|
|
|
|
(in thousands)
|
|
Time
deposits
|
|
$
|
318,390
|
|
$
|
85,732
|
|
$
|
30,491
|
|
$
|
132
|
|
$
|
434,745
|
|
Long-term
securities sold under agreements to repurchase
|
|
80,000
|
|
15,000
|
|
5,000
|
|
|
|
100,000
|
|
Long-term
debt
|
|
30,000
|
|
20,000
|
|
|
|
|
|
50,000
|
|
Junior
subordinated debt (1)
|
|
15,150
|
|
5,000
|
|
|
|
|
|
20,150
|
|
Operating
leases
|
|
2,517
|
|
4,156
|
|
2,947
|
|
14,122
|
|
23,742
|
|
Unconditional
purchase obligations
|
|
477
|
|
668
|
|
|
|
|
|
1,145
|
|
Total
|
|
$
|
446,534
|
|
$
|
130,556
|
|
$
|
38,438
|
|
$
|
14,254
|
|
$
|
629,782
|
|
(1) Junior
subordinated debt is classified based on the earliest date on which it may be
redeemed, and not contractual maturity.
Risk
Elements
Non-performing loans,
consisting of loans on non-accrual status, loans past due 90 days or more and
still accruing interest, and renegotiated troubled debt were $11.1 million at December 31,
2008, an increase from $6.8 million at December 31, 2007. Generally, loans
that are more than 90 days past due are placed on non-accrual status. As a percentage of total loans, non-performing
loans represented 1.25% at December 31, 2008 and .83% at December 31,
2007. The allowance for loan losses
represents 73.0% of non-performing loans at December 31, 2008, compared to
106.5% at December 31, 2007.
The Company continues to
emphasize credit quality and believes that pre-funding analysis and diligent
intervention at the first signs of delinquency will help to manage these
levels.
The following table is a
summary of non-performing loans and renegotiated loans for the years presented.
43
Table of Contents
|
|
Non-performing Loans
|
|
|
|
As of December 31,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
(in thousands)
|
|
Non-accrual
loans:
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate
|
|
$
|
2,947
|
|
$
|
1,160
|
|
$
|
1,317
|
|
$
|
1,231
|
|
$
|
2,447
|
|
Consumer
|
|
459
|
|
259
|
|
578
|
|
366
|
|
|
|
Commercial
|
|
7,298
|
|
2,133
|
|
2,094
|
|
3,970
|
|
471
|
|
Total
|
|
10,704
|
|
3,552
|
|
3,989
|
|
5,567
|
|
2,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
past due 90 days or more and still accruing interest:
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate
|
|
28
|
|
331
|
|
47
|
|
12
|
|
2,384
|
|
Consumer
|
|
|
|
408
|
|
|
|
|
|
33
|
|
Commercial
|
|
112
|
|
2,266
|
|
46
|
|
594
|
|
548
|
|
Total
loans past due 90 days or more
|
|
140
|
|
3,005
|
|
93
|
|
606
|
|
2,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Troubled
debt restructurings:
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
285
|
|
267
|
|
319
|
|
150
|
|
103
|
|
Total
troubled debt restructurings
|
|
285
|
|
267
|
|
319
|
|
150
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-performing loans
|
|
$
|
11,129
|
|
$
|
6,824
|
|
$
|
4,401
|
|
$
|
6,323
|
|
$
|
5,986
|
|
At December 31,
2008, there were no commercial loans for which payments are current, but where
the borrowers were experiencing significant financial difficulties, that were
not classified as non-accrual.
The following summary
shows the impact on interest income of non-accrual and restructured loans for
the year ended December 31, 2008 (in thousands):
Amount
of interest income on loans that would have been recorded under original
terms
|
|
$
|
277
|
|
Interest
income reported during the period
|
|
$
|
187
|
|
Provision
and Allowance for Loan Losses
The provision for loan
losses for 2008 was $4.8 million compared to $1.0 million in 2007 and $1.1
million in 2006. The Company performs a
review of the credit quality of its loan portfolio on a monthly basis to determine
the adequacy of the allowance for probable loan losses. The Company experienced growth in the loan
portfolio of 8.0% in 2008 and 7.3% in 2007.
The allowance for loan losses at December 31, 2008 was $8.1
million, or 0.92% of outstanding loans, compared to $7.3 million or 0.88% of
outstanding loans at December 31, 2007.
The increase in the provision for loan losses for 2008 over 2007 is due
primarily to the result of managements evaluation and classification of the
credit quality of the loan portfolio utilizing a qualitative and quantitative
internal loan review process.
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. Management regularly assesses the adequacy of
the allowance by performing an ongoing evaluation of the loan portfolio,
including such factors as charge-off history, the level of delinquent loans,
the current financial condition of specific borrowers, value of any collateral,
risk characteristics in the loan portfolio, and local and national economic
conditions. All loans are individually
analyzed, while other smaller balance loans are evaluated by loan
category. Based upon the results of such
reviews, management believes that the allowance for loan losses at December 31,
2008 was adequate to absorb credit losses inherent in the portfolio as of that
date.
The following table
presents a comparative allocation of the allowance for loan losses for each of
the past five year-ends. Amounts were allocated to specific loan categories
based upon managements classification of loans under the Companys internal
loan grading system and assessment of near-term charge-offs and losses existing
in
44
Table
of Contents
specific larger balance
loans that are reviewed in detail by the Companys internal loan review
department and pools of other loans that are not individually analyzed. The allocation is made for analytical
purposes and is not necessarily indicative of the categories in which future
credit losses may occur.
Allocation of Allowance for Loan Losses
(In thousands except percentage data)
|
|
As
of December 31,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
%
of
|
|
|
|
%
of
|
|
|
|
%
of
|
|
|
|
%
of
|
|
|
|
%
of
|
|
|
|
|
|
Total
|
|
|
|
Total
|
|
|
|
Total
|
|
|
|
Total
|
|
|
|
Total
|
|
|
|
Amount
|
|
Loans
|
|
Amount
|
|
Loans
|
|
Amount
|
|
Loans
|
|
Amount
|
|
Loans
|
|
Amount
|
|
Loans
|
|
Commercial
|
|
$
|
6,851
|
|
56.4
|
%
|
$
|
6,125
|
|
54.9
|
%
|
$
|
6,451
|
|
50.9
|
%
|
$
|
6,318
|
|
49.4
|
%
|
$
|
6,071
|
|
46.9
|
%
|
Residential Real Estate
|
|
263
|
|
43.1
|
|
233
|
|
44.4
|
|
216
|
|
48.3
|
|
229
|
|
49.0
|
|
387
|
|
51.1
|
|
Consumer
|
|
738
|
|
0.5
|
|
622
|
|
0.7
|
|
808
|
|
0.8
|
|
884
|
|
1.6
|
|
782
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Allocated
|
|
7,852
|
|
100.0
|
|
6,980
|
|
100.0
|
|
7,475
|
|
100.0
|
|
7,431
|
|
100.0
|
|
7,240
|
|
100.0
|
|
Unallocated
|
|
272
|
|
|
|
284
|
|
|
|
136
|
|
|
|
188
|
|
|
|
8
|
|
|
|
TOTAL
|
|
$
|
8,124
|
|
100.0
|
%
|
$
|
7,264
|
|
100.0
|
%
|
$
|
7,611
|
|
100.0
|
%
|
$
|
7,619
|
|
100.0
|
%
|
$
|
7,248
|
|
100.0
|
%
|
The unallocated portion
of the allowance is intended to provide for probable losses that are not
otherwise accounted for and to compensate for the imprecise nature of
estimating future loan losses.
Management believes the allowance is adequate to cover the inherent
risks associated with the Companys loan portfolio. While allocations have been established for
particular loan categories, management considers the entire allowance to be
available to absorb losses in any category.
45
Table
of Contents
The following tables set
forth an analysis of the Companys allowance for loan losses for the years
presented.
Analysis
of the Allowance for Loan Losses
(in
thousands except ratios)
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
Balance,
Beginning of year
|
|
$
|
7,264
|
|
$
|
7,611
|
|
$
|
7,619
|
|
$
|
7,248
|
|
$
|
4,356
|
|
Balance
acquired in merger
|
|
|
|
|
|
|
|
|
|
2,079
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
3,613
|
|
1,087
|
|
708
|
|
663
|
|
315
|
|
Real
Estate
|
|
30
|
|
56
|
|
356
|
|
413
|
|
202
|
|
Consumer
|
|
430
|
|
405
|
|
241
|
|
202
|
|
111
|
|
Total
|
|
4,073
|
|
1,548
|
|
1,305
|
|
1,278
|
|
628
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
79
|
|
112
|
|
59
|
|
53
|
|
9
|
|
Real
Estate
|
|
|
|
53
|
|
94
|
|
89
|
|
87
|
|
Consumer
|
|
19
|
|
38
|
|
60
|
|
47
|
|
25
|
|
Total
|
|
98
|
|
203
|
|
213
|
|
189
|
|
121
|
|
Net
Charge-offs
|
|
3,975
|
|
1,345
|
|
1,092
|
|
1,089
|
|
507
|
|
Provision
Charged to Operations
|
|
4,835
|
|
998
|
|
1,084
|
|
1,460
|
|
1,320
|
|
Balance,
End of Year
|
|
$
|
8,124
|
|
$
|
7,264
|
|
$
|
7,611
|
|
$
|
7,619
|
|
$
|
7,248
|
|
Average
Loans
|
|
$
|
857,835
|
|
$
|
791,440
|
|
$
|
711,240
|
|
$
|
632,631
|
|
$
|
433,941
|
|
Ratio
of Net Charge-offs to Average Loans
|
|
0.46
|
%
|
0.17
|
%
|
0.15
|
%
|
0.17
|
%
|
0.12
|
%
|
Ratio
of Allowance to Loans, End of Year
|
|
0.92
|
%
|
0.88
|
%
|
1.00
|
%
|
1.16
|
%
|
1.22
|
%
|
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 December 31, 2008, 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
46
Table
of Contents
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.
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
47
Table
of Contents
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.
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.
Loan
Portfolio
The following table sets
forth the Companys loan distribution at the periods presented:
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
(in thousands)
|
|
Commercial,
Financial, and Agricultural
|
|
$
|
499,847
|
|
$
|
450,353
|
|
$
|
389,455
|
|
$
|
322,875
|
|
$
|
279,756
|
|
Real
Estate Construction
|
|
89,556
|
|
79,414
|
|
96,163
|
|
61,123
|
|
30,039
|
|
Residential
Real Estate
|
|
292,707
|
|
285,330
|
|
272,925
|
|
259,434
|
|
274,417
|
|
Consumer
|
|
4,195
|
|
5,901
|
|
6,240
|
|
10,812
|
|
12,116
|
|
Total
|
|
$
|
886,305
|
|
$
|
820,998
|
|
$
|
764,783
|
|
$
|
654,244
|
|
$
|
596,328
|
|
Loan
Maturities
The following table shows
the maturity of commercial, financial and agricultural loans outstanding at December 31,
2008:
|
|
Maturities of Outstanding Loans
|
|
|
|
Within
|
|
After One
|
|
After
|
|
|
|
|
|
One
|
|
But Within
|
|
Five
|
|
|
|
|
|
Year
|
|
Five Years
|
|
Years
|
|
Total
|
|
|
|
(in
thousands)
|
|
Commercial,
Financial, and Agricultural
|
|
$
|
147,182
|
|
$
|
156,873
|
|
$
|
195,792
|
|
$
|
499,847
|
|
Real
Estate Construction
|
|
73,829
|
|
12,572
|
|
3,155
|
|
89,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
Table of Contents
Securities
Portfolio
The following table sets
forth the amortized cost of the Companys investment securities at its last
three fiscal year ends:
|
|
As of December 31,
|
|
Securities Available For Sale
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
(In thousands)
|
|
Corporations
|
|
$
|
9,438
|
|
$
|
5,889
|
|
$
|
9,703
|
|
State
and Municipal Obligations
|
|
26,582
|
|
20,582
|
|
16,327
|
|
Mortgage
Backed Securities
|
|
185,945
|
|
136,103
|
|
113,953
|
|
Other
Securities and Equity Securities
|
|
16,570
|
|
25,598
|
|
23,447
|
|
Total
|
|
$
|
238,535
|
|
$
|
188,172
|
|
$
|
163,430
|
|
|
|
As of December 31,
|
|
Securities Held to Maturity
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
(In thousands)
|
|
Other
Securities and Equity Securities
|
|
$
|
3,060
|
|
$
|
3,078
|
|
$
|
3,117
|
|
Total
|
|
$
|
3,060
|
|
$
|
3,078
|
|
$
|
3,117
|
|
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-K.
For purposes of financial
reporting, available for sale securities are reflected at estimated fair value.
Securities
Portfolio Maturities and Yields
The following table sets
forth information about the maturities and weighted average yield on the
Companys securities portfolio. Floating
rate securities are included in the Due in 1 Year or Less bucket. Yields are not reported on a tax equivalent
basis.
49
Table of Contents
|
|
Amortized Cost at December 31, 2008
|
|
|
|
Due in
|
|
After 1
|
|
After 5
|
|
|
|
|
|
|
|
|
|
1 Year
|
|
Year to
|
|
Years to
|
|
After
|
|
|
|
Fair
|
|
Securities Available For Sale
|
|
or Less
|
|
5 Years
|
|
10 Years
|
|
10 Years
|
|
Total
|
|
Value
|
|
|
|
(In thousands except percentage data)
|
|
Obligations
of U.S. Government Agencies and Corporations
|
|
$
|
|
|
$
|
|
|
$
|
60
|
|
$
|
9,378
|
|
$
|
9,438
|
|
$
|
9,331
|
|
|
|
|
%
|
|
%
|
7.08
|
%
|
6.26
|
%
|
6.27
|
%
|
|
|
State
and Municipal Obligations
|
|
$
|
|
|
$
|
|
|
$
|
361
|
|
$
|
26,221
|
|
$
|
26,582
|
|
25,033
|
|
|
|
|
%
|
|
%
|
4.00
|
%
|
4.34
|
%
|
4.34
|
%
|
|
|
Other
Securities and Equity Securities
|
|
$
|
1,500
|
|
$
|
1,542
|
|
$
|
1,000
|
|
$
|
12,528
|
|
$
|
16,570
|
|
7,124
|
|
|
|
5.10
|
%
|
5.00
|
%
|
5.35
|
%
|
4.56
|
%
|
4.70
|
%
|
|
|
Mortgage
Backed Securities
|
|
$
|
|
|
$
|
|
|
$
|
6,343
|
|
$
|
179,602
|
|
$
|
185,945
|
|
185,177
|
|
|
|
|
|
|
|
5.38
|
%
|
5.74
|
%
|
5.73
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost at December 31, 2008
|
|
|
|
Due in
|
|
After 1
|
|
After 5
|
|
|
|
|
|
|
|
|
|
1 Year
|
|
Year to
|
|
Years to
|
|
After
|
|
|
|
Fair
|
|
Securities Held to Maturity
|
|
or Less
|
|
5 Years
|
|
10 Years
|
|
10 Years
|
|
Total
|
|
Value
|
|
|
|
(In thousands except percentage data)
|
|
Corporate
Debt Securities
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
3,060
|
|
$
|
3,060
|
|
$
|
1,926
|
|
|
|
|
%
|
|
%
|
|
%
|
7.94
|
%
|
7.94
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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-K.
Maturity
of Certificates of Deposit of $100,000 or More
The following table sets
forth the amounts of the Banks certificates of deposit of $100,000 or more by
maturity date.
|
|
December 31, 2008
|
|
|
|
(in thousands)
|
|
Three
Months or Less
|
|
$
|
69,629
|
|
Over
Three Through Six Months
|
|
46,357
|
|
Over
Six Through Twelve Months
|
|
44,001
|
|
Over
Twelve Months
|
|
35,825
|
|
TOTAL
|
|
$
|
195,812
|
|
Average
Deposits and Average Rates by Major Classification
The following table sets
forth the average balances of the Banks deposits and the average rates paid
for the years presented.
50
Table
of Contents
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
Amount
|
|
Rate
|
|
Amount
|
|
Rate
|
|
Amount
|
|
Rate
|
|
|
|
(Dollars in thousands)
|
|
Non-interest
bearing demand
|
|
$
|
107,642
|
|
|
|
$
|
106,782
|
|
|
|
$
|
111,759
|
|
|
|
Interest
bearing demand
|
|
238,144
|
|
1.95
|
%
|
222,335
|
|
2.88
|
%
|
222,385
|
|
2.67
|
%
|
Savings
deposits
|
|
84,453
|
|
1.70
|
%
|
90,419
|
|
2.91
|
%
|
68,536
|
|
2.33
|
%
|
Time
deposits
|
|
351,011
|
|
4.22
|
%
|
322,235
|
|
4.78
|
%
|
288,644
|
|
4.36
|
%
|
Total
|
|
$
|
781,250
|
|
|
|
$
|
741,771
|
|
|
|
$
|
691,324
|
|
|
|
Other
Borrowed Funds
Other borrowings at December 31,
2008 consisted of overnight borrowings from the FHLB under a repurchase
agreement, overnight borrowings from other correspondent financial
institutions, and repurchase agreements with customers and other financial
institutions. The borrowings are
collateralized by certain qualifying assets of the Bank.
Federal funds purchased
by the Bank were $53.4 million and $118.2 million at December 31, 2008 and
2007, respectively. The federal funds
purchased typically mature in one day.
Information concerning
the short-term borrowings is summarized as follows:
|
|
As of December 31,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
(In thousands except percentage data)
|
|
Federal funds purchased:
|
|
|
|
|
|
|
|
Average
balance during the year
|
|
$
|
76,307
|
|
$
|
76,805
|
|
$
|
67,192
|
|
Rate
|
|
2.35
|
%
|
5.06
|
%
|
5.15
|
%
|
|
|
|
|
|
|
|
|
Securities sold under agreements to repurchase:
|
|
|
|
|
|
|
|
Average
balance during the year
|
|
25,000
|
|
26,781
|
|
22,014
|
|
Rate
|
|
2.10
|
%
|
4.05
|
%
|
4.13
|
%
|
|
|
|
|
|
|
|
|
Maximum month end balance of short-term borrowings during
the year
|
|
$
|
124,308
|
|
$
|
155,110
|
|
$
|
129,039
|
|
Dividends
and Shareholders Equity
The Company declared cash
dividends in 2008 of $0.50 per share and $0.77 per share in 2007. The cash dividends have been adjusted for the
5% stock dividend in 2007.
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
|
|
|
|
|
(As Restated)
|
|
2007
|
|
2006
|
|
Return
on average assets
|
|
0.05
|
%
|
0.70
|
%
|
0.92
|
%
|
Return
on average equity
|
|
0.54
|
%
|
7.15
|
%
|
9.38
|
%
|
Dividend
payout ratio
|
|
503.89
|
%
|
58.53
|
%
|
42.74
|
%
|
Average
equity to average assets
|
|
8.95
|
%
|
9.78
|
%
|
9.82
|
%
|
Management has discussed
the development and selection of these critical accounting estimates with the
Audit Committee of the Board of Directors and the Audit Committee has reviewed
the Companys disclosure relating to it in this Managements Discussion and
Analysis.
51
Table of Contents
Item
7A. Quantitative and Qualitative
Disclosures About Market Risk.
The discussion concerning
the effects of interest rate changes on the Companys estimated net interest
income for the year ended December 31, 2008 set forth under Managements
Discussion and Analysis of Financial Condition and Results of
OperationsInterest Rate Sensitivity in Item 7 hereof, is incorporated herein
by reference.
52
Table of Contents
Item
8. Financial Statements and
Supplementary Data
Report of Independent Registered Public Accounting
Firm
To
the Board of Directors and Shareholders
VIST
Financial Corp.
Wyomissing, Pennsylvania
We have audited the accompanying
consolidated balance sheets of VIST Financial Corp. and its subsidiaries (the Company)
as of December 31, 2008 and 2007, and the related consolidated statements
of income, shareholders equity and cash flows for each of the years in the
three-year period ended December 31, 2008. The Companys management is
responsible for these consolidated financial statements. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated
financial statements referred to above present fairly, in all material
respects, the consolidated financial position of VIST Financial Corp. and its
subsidiaries as of December 31, 2008 and 2007 and the consolidated results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2008 in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 1 to the
consolidated financial statements, effective January 1, 2007, the Company
early adopted Statement of Financial Accounting Standards (SFAS) No. 157,
Fair Value Measurements,
and SFAS No. 159,
The Fair Value Option for Financial Assets and Liabilities.
As discussed in Note 2 to the
consolidated financial statements, the December 31, 2008 consolidated
financial statements have been restated to (i) correct the calculation of
fair value on the junior subordinated debentures, (ii) record changes in
fair value of the junior subordinated debentures and related cash flow hedges
in operations, and (iii) correct the misapplication of cash flow hedge
accounting to the junior subordinated debentures accounted for at fair value.
We also have audited, in accordance with
the standards of the Public Company Accounting Oversight Board (United States),
VIST Financial Corp.s internal control over financial reporting as of December 31,
2008, based on criteria established in
Internal
ControlIntegrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated March 26,
2010 expressed an adverse opinion.
|
|
ParenteBeard LLC
|
/s/ ParenteBeard LLC
|
Reading, Pennsylvania
|
|
March 4,
2009 (except
for Note 2,
|
|
|
as
to which the date is March 26, 2010)
|
|
|
|
|
53
Table of Contents
VIST FINANCIAL
CORP. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(Dollar amounts in
thousands, except per share data)
|
|
December 31,
|
|
|
|
2008
|
|
|
|
|
|
(As Restated)
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
18,964
|
|
$
|
25,473
|
|
Interest-bearing
deposits in banks
|
|
320
|
|
316
|
|
|
|
|
|
|
|
Total
cash and cash equivalents
|
|
19,284
|
|
25,789
|
|
|
|
|
|
|
|
Mortgage
loans held for sale
|
|
2,283
|
|
3,165
|
|
Securities
available for sale
|
|
226,665
|
|
186,481
|
|
Securities
held to maturity, fair value 2008 - $1,926; 2007 - $3,100
|
|
3,060
|
|
3,078
|
|
Federal
Home Loan Bank stock
|
|
5,715
|
|
5,562
|
|
Loans,
net of allowance for loan losses 2008 - $8,124; 2007 - $7,264
|
|
878,181
|
|
813,734
|
|
Premises
and equipment, net
|
|
6,591
|
|
6,892
|
|
Identifiable
intangible assets
|
|
4,833
|
|
3,892
|
|
Goodwill
|
|
39,732
|
|
39,189
|
|
Bank
owned life insurance
|
|
18,552
|
|
17,857
|
|
Other
assets
|
|
21,174
|
|
19,312
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,226,070
|
|
$
|
1,124,951
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
Non-interest
bearing
|
|
$
|
108,645
|
|
$
|
109,718
|
|
Interest
bearing
|
|
741,955
|
|
602,927
|
|
|
|
|
|
|
|
Total deposits
|
|
850,600
|
|
712,645
|
|
|
|
|
|
|
|
Securities
sold under agreements to repurchase
|
|
120,086
|
|
110,881
|
|
Federal
funds purchased
|
|
53,424
|
|
118,210
|
|
Long-term
debt
|
|
50,000
|
|
45,000
|
|
Junior
subordinated debt, at fair value as of December 31, 2008
|
|
18,260
|
|
20,232
|
|
Other
liabilities
|
|
10,071
|
|
11,391
|
|
|
|
|
|
|
|
Total liabilities
|
|
1,102,441
|
|
1,018,359
|
|
|
|
|
|
|
|
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 at December 31, 2008 and no shares at
December 31, 2007; Less: discount of $2,307 at December 31, 2008
and no discount at December 31, 2007
|
|
22,693
|
|
|
|
Common
stock, $5.00 par value; authorized 20,000,000 shares; issued: 5,768,429
shares at December 31, 2008 and 5,746,998 shares at December 31,
2007
|
|
28,842
|
|
28,735
|
|
Stock
warrants
|
|
2,307
|
|
|
|
Surplus
|
|
64,349
|
|
63,940
|
|
Retained
earnings
|
|
14,757
|
|
17,039
|
|
Accumulated
other comprehensive loss
|
|
(7,834
|
)
|
(1,116
|
)
|
Treasury
stock; 68,354 shares at December 31, 2008 and 89,853 shares at December 31,
2007, at cost
|
|
(1,485
|
)
|
(2,006
|
)
|
|
|
|
|
|
|
Total shareholders equity
|
|
123,629
|
|
106,592
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
1,226,070
|
|
$
|
1,124,951
|
|
See
Notes to Consolidated Financial Statements.
54
Table of Contents
VIST FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2008, 2007 and 2006
(Amounts in thousands, except per share data)
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
|
|
|
|
|
(As Restated)
|
|
2007
|
|
2006
|
|
Interest and dividend income:
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
54,532
|
|
$
|
59,234
|
|
$
|
52,971
|
|
Interest on securities:
|
|
|
|
|
|
|
|
Taxable
|
|
9,942
|
|
7,859
|
|
7,202
|
|
Tax-exempt
|
|
959
|
|
571
|
|
790
|
|
Dividend income
|
|
393
|
|
384
|
|
396
|
|
Other interest income
|
|
12
|
|
28
|
|
18
|
|
Total interest and dividend income
|
|
65,838
|
|
68,076
|
|
61,377
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
Interest on deposits
|
|
20,874
|
|
24,428
|
|
20,141
|
|
Interest on short-term borrowings
|
|
1,826
|
|
3,940
|
|
3,507
|
|
Interest on securities sold under agreements to
repurchase
|
|
4,128
|
|
3,906
|
|
2,847
|
|
Interest on long-term debt
|
|
2,372
|
|
663
|
|
1,174
|
|
Interest on junior subordinated debt
|
|
1,437
|
|
1,898
|
|
1,852
|
|
Total interest expense
|
|
30,637
|
|
34,835
|
|
29,521
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
35,201
|
|
33,241
|
|
31,856
|
|
Provision for loan losses
|
|
4,835
|
|
998
|
|
1,084
|
|
Net interest income after
provision for loan losses
|
|
30,366
|
|
32,243
|
|
30,772
|
|
|
|
|
|
|
|
|
|
Other income:
|
|
|
|
|
|
|
|
Customer service fees
|
|
2,964
|
|
2,657
|
|
2,689
|
|
Mortgage banking activities, net
|
|
897
|
|
1,894
|
|
3,574
|
|
Commissions and fees from insurance sales
|
|
11,284
|
|
11,362
|
|
11,269
|
|
Broker and investment advisory commissions and fees
|
|
813
|
|
886
|
|
721
|
|
Earnings on investment in life insurance
|
|
690
|
|
806
|
|
560
|
|
Gains on sale of loans
|
|
47
|
|
164
|
|
102
|
|
Net realized gains (losses) on sales of securities
|
|
(7,230
|
)
|
(2,324
|
)
|
515
|
|
Other income
|
|
2,514
|
|
2,402
|
|
2,028
|
|
Total other income
|
|
11,979
|
|
17,847
|
|
21,458
|
|
|
|
|
|
|
|
|
|
Other expense:
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
22,078
|
|
21,561
|
|
22,142
|
|
Occupancy expense
|
|
4,707
|
|
4,309
|
|
4,465
|
|
Equipment expense
|
|
2,690
|
|
2,545
|
|
2,641
|
|
Marketing and advertising expense
|
|
1,635
|
|
1,672
|
|
1,354
|
|
Amortization of identifiable intangible assets
|
|
629
|
|
622
|
|
636
|
|
Professional services
|
|
2,594
|
|
1,835
|
|
1,257
|
|
Outside processing services
|
|
3,334
|
|
3,203
|
|
2,981
|
|
Insurance expense
|
|
1,262
|
|
614
|
|
500
|
|
Other expense
|
|
4,709
|
|
4,513
|
|
4,262
|
|
Total other expense
|
|
43,638
|
|
40,874
|
|
40,238
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
(1,293
|
)
|
9,216
|
|
11,992
|
|
Income taxes (benefit)
|
|
(1,858
|
)
|
1,746
|
|
2,839
|
|
Net income
|
|
$
|
565
|
|
$
|
7,470
|
|
$
|
9,153
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.10
|
|
$
|
1.32
|
|
$
|
1.63
|
|
Diluted earnings per share
|
|
$
|
0.10
|
|
$
|
1.31
|
|
$
|
1.62
|
|
See Notes to Consolidated Financial Statements.
55
Table of Contents
VIST FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
Years Ended December 31, 2008, 2007 and 2006
(Dollar amounts in thousands, except share data)
|
|
Preferred
Stock
|
|
Common
Stock
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Number
of
|
|
|
|
Number
of
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
Shares
|
|
Liquidation
|
|
Shares
|
|
|
|
Stock
|
|
|
|
Retained
|
|
Comprehensive
|
|
Treasury
|
|
|
|
|
|
Issued
|
|
Value
|
|
Issued
|
|
Par Value
|
|
Warrants
|
|
Surplus
|
|
Earnings
|
|
(Loss)
|
|
Stock
|
|
Total
|
|
Balance, December 31, 2005
|
|
|
|
$
|
|
|
5,111,178
|
|
$
|
25,556
|
|
$
|
|
|
$
|
52,581
|
|
$
|
20,790
|
|
$
|
(3,143
|
)
|
$
|
(1,028
|
)
|
$
|
94,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,153
|
|
|
|
|
|
9,153
|
|
Change
in net unrealized gains (losses) on securities available for sale, net of
reclassification adjustment and tax effect
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
617
|
|
|
|
617
|
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of treasury stock (45,000 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,118
|
)
|
(1,118
|
)
|
Additional
consideration in connection with acquisitions (11,727 shares)
|
|
|
|
|
|
|
|
|
|
|
|
58
|
|
|
|
|
|
223
|
|
281
|
|
Common
stock dividend (5%)
|
|
|
|
|
|
253,241
|
|
1,266
|
|
|
|
4,463
|
|
(5,729
|
)
|
|
|
|
|
|
|
Common
stock issued in connection with Directors compensation (7,124 shares)
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
|
|
|
132
|
|
171
|
|
Common
stock issued in connection with director and employee stock purchase plans
|
|
|
|
|
|
90,170
|
|
451
|
|
|
|
1,220
|
|
|
|
|
|
139
|
|
1,810
|
|
Tax
benefits from employee stock transactions
|
|
|
|
|
|
|
|
|
|
|
|
127
|
|
|
|
|
|
|
|
127
|
|
Compensation
expense related to stock options
|
|
|
|
|
|
|
|
|
|
|
|
245
|
|
|
|
|
|
|
|
245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends declared ($0.70 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,912
|
)
|
|
|
|
|
(3,912
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006
|
|
|
|
|
|
5,454,589
|
|
27,273
|
|
|
|
58,733
|
|
20,302
|
|
(2,526
|
)
|
(1,652
|
)
|
102,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment
to opening balance, net of tax, for the
adoption
of SFAS No. 159 (see Note 1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(409
|
)
|
|
|
|
|
(409
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
opening balance, January 1, 2007
|
|
|
|
|
|
5,454,589
|
|
27,273
|
|
|
|
58,733
|
|
19,893
|
|
(2,526
|
)
|
(1,652
|
)
|
101,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,470
|
|
|
|
|
|
7,470
|
|
Change
in net unrealized gains (losses) on securities available for sale, net of
reclassification adjustment and tax effect
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,410
|
|
|
|
1,410
|
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of treasury stock (35,000 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(660
|
)
|
(660
|
)
|
Additional
consideration in connection with acquisitions (13,381 shares)
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
306
|
|
320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock dividend (5%)
|
|
|
|
|
|
270,413
|
|
1,353
|
|
|
|
4,591
|
|
(5,944
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in connection with directors compensation
|
|
|
|
|
|
9,323
|
|
46
|
|
|
|
176
|
|
|
|
|
|
|
|
222
|
|
Common
stock issued in connection with director and employee stock purchase plans
|
|
|
|
|
|
12,673
|
|
63
|
|
|
|
159
|
|
|
|
|
|
|
|
222
|
|
Tax
benefits from employee stock transactions
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
12
|
|
Compensation
expense related to stock options
|
|
|
|
|
|
|
|
|
|
|
|
255
|
|
|
|
|
|
|
|
255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends declared ($0.77 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,380
|
)
|
|
|
|
|
(4,380
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
|
|
|
5,746,998
|
|
28,735
|
|
|
|
63,940
|
|
17,039
|
|
(1,116
|
)
|
(2,006
|
)
|
106,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (as restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
565
|
|
|
|
|
|
565
|
|
Change
in net unrealized gains (losses) on securities available for sale, net of
reclassification adjustment and tax effect
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,718
|
)
|
|
|
(6,718
|
)
|
Total
comprehensive loss (as restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of preferred stock
|
|
25,000
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
Preferred
stock discount
|
|
|
|
(2,307
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,307
|
)
|
Issuance
of stock warrants
|
|
|
|
|
|
|
|
|
|
2,307
|
|
|
|
|
|
|
|
|
|
2,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
consideration in connection with acquisitions (21,499 shares)
|
|
|
|
|
|
|
|
|
|
|
|
(137
|
)
|
|
|
|
|
521
|
|
384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
10,623
|
|
53
|
|
|
|
88
|
|
|
|
|
|
|
|
141
|
|
Compensation
expense related to stock options
|
|
|
|
|
|
|
|
|
|
|
|
319
|
|
|
|
|
|
|
|
319
|
|
Cash
dividends declared ($0.50 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,847
|
)
|
|
|
|
|
(2,847
|
)
|
Balance, December 31, 2008 (as restated)
|
|
25,000
|
|
$
|
22,693
|
|
5,768,429
|
|
$
|
28,842
|
|
$
|
2,307
|
|
$
|
64,349
|
|
$
|
14,757
|
|
$
|
(7,834
|
)
|
$
|
(1,485
|
)
|
$
|
123,629
|
|
See Notes to Consolidated Financial Statements.
56
Table of Contents
VIST FINANCIAL
CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Years ended December 31,
2008, 2007 and 2006
(Dollar amounts in
thousands)
|
|
Years
Ended December 31,
|
|
|
|
2008
|
|
|
|
|
|
|
|
(As
Restated)
|
|
2007
|
|
2006
|
|
Cash Flows From Operating
Activities
|
|
|
|
|
|
|
|
Net income
|
|
$
|
565
|
|
$
|
7,470
|
|
$
|
9,153
|
|
Adjustments to reconcile net income to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
4,835
|
|
998
|
|
1,084
|
|
Provision for depreciation and amortization of
premises and equipment
|
|
1,470
|
|
1,539
|
|
1,653
|
|
Amortization of identifiable intangible assets
|
|
629
|
|
622
|
|
636
|
|
Deferred income taxes
|
|
(345
|
)
|
(45
|
)
|
121
|
|
Director stock compensation
|
|
193
|
|
222
|
|
171
|
|
Net amortization of securities premiums and
discounts
|
|
14
|
|
160
|
|
285
|
|
Amortization of mortgage servicing rights
|
|
202
|
|
143
|
|
77
|
|
Decrease in mortgage servicing rights
|
|
(6
|
)
|
(8
|
)
|
(18
|
)
|
Net realized losses (gains) on sales of foreclosed
real estate
|
|
120
|
|
(28
|
)
|
(13
|
)
|
Net realized losses (gains) on sales of securities
|
|
7,230
|
|
2,324
|
|
(515
|
)
|
Proceeds from sales of loans held for sale
|
|
42,787
|
|
100,014
|
|
187,040
|
|
Net gains on sale of loans
|
|
(831
|
)
|
(1,743
|
)
|
(3,121
|
)
|
Loans originated for sale
|
|
(41,074
|
)
|
(95,854
|
)
|
(172,945
|
)
|
Increase in investment in life insurance
|
|
(695
|
)
|
(667
|
)
|
(487
|
)
|
Compensation expense related to stock options
|
|
319
|
|
255
|
|
245
|
|
Net change in fair value of liabilities
|
|
(1,972
|
)
|
103
|
|
|
|
Decrease (increase) in accrued interest receivable
and other assets
|
|
7,816
|
|
66
|
|
(1,642
|
)
|
(Decrease) increase in accrued interest payable and
other liabilities
|
|
(6,907
|
)
|
(11,667
|
)
|
12,256
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Operating
Activities
|
|
14,350
|
|
3,904
|
|
33,980
|
|
|
|
|
|
|
|
|
|
Cash Flow From Investing
Activities
|
|
|
|
|
|
|
|
Investment securities:
|
|
|
|
|
|
|
|
Purchases - available for sale
|
|
(182,595
|
)
|
(169,175
|
)
|
(16,732
|
)
|
Principal repayments, maturities and calls -
available for sale
|
|
33,631
|
|
23,334
|
|
26,729
|
|
Principal repayments, maturities and calls - held
to maturity
|
|
|
|
|
|
3,031
|
|
Proceeds from sales - available for sale
|
|
91,376
|
|
118,654
|
|
8,006
|
|
Net increase in loans receivable
|
|
(70,022
|
)
|
(59,755
|
)
|
(113,339
|
)
|
Proceeds from sale of loans
|
|
740
|
|
2,195
|
|
1,708
|
|
Net (increase) decrease in Federal Home Loan Bank
Stock
|
|
(153
|
)
|
(985
|
)
|
1,546
|
|
Net (increase) decrease in foreclosed real estate
|
|
166
|
|
337
|
|
(758
|
)
|
Purchases of premises and equipment
|
|
(1,180
|
)
|
(1,492
|
)
|
(834
|
)
|
Disposals of premises and equipment
|
|
11
|
|
2
|
|
51
|
|
Purchases of bank owned life insurance
|
|
|
|
|
|
(5,000
|
)
|
Net cash used in acquisitions
|
|
(1,750
|
)
|
|
|
|
|
Net Cash Used In Investing
Activities
|
|
(129,776
|
)
|
(86,885
|
)
|
(95,592
|
)
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial
Statements.
57
Table of Contents
VIST FINANCIAL
CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)
Years ended December 31,
2008, 2007 and 2006
(Dollar amounts in
thousands)
|
|
Years
Ended December 31,
|
|
|
|
2008
|
|
|
|
|
|
|
|
(As
Restated)
|
|
2007
|
|
2006
|
|
Cash Flow From Financing
Activities
|
|
|
|
|
|
|
|
Net increase in deposits
|
|
137,955
|
|
9,806
|
|
43,109
|
|
Net (decrease) increase in federal funds purchased
|
|
(64,786
|
)
|
36,105
|
|
15,875
|
|
Net increase in securities sold under agreements to
repurchase
|
|
9,205
|
|
19,894
|
|
21,532
|
|
Proceeds from long-term debt
|
|
20,000
|
|
40,000
|
|
|
|
Repayments of long-term debt
|
|
(15,000
|
)
|
(14,500
|
)
|
(23,500
|
)
|
Issuance of preferred stock, including stock
warrant
|
|
25,000
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
|
(660
|
)
|
(1,118
|
)
|
Reissuance of treasury stock
|
|
384
|
|
320
|
|
281
|
|
Proceeds from the exercise of stock options and
stock purchase plans
|
|
141
|
|
222
|
|
1,810
|
|
Tax benefits from employee stock transactions
|
|
|
|
12
|
|
127
|
|
Cash dividends paid
|
|
(3,978
|
)
|
(4,264
|
)
|
(3,800
|
)
|
Net Cash Provided By Financing
Activities
|
|
108,921
|
|
86,935
|
|
54,316
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents
|
|
(6,505
|
)
|
3,954
|
|
(7,296
|
)
|
Cash and Cash Equivalents:
|
|
|
|
|
|
|
|
January 1
|
|
25,789
|
|
21,835
|
|
29,131
|
|
December 31
|
|
$
|
19,284
|
|
$
|
25,789
|
|
$
|
21,835
|
|
|
|
|
|
|
|
|
|
Cash Payments For:
|
|
|
|
|
|
|
|
Interest
|
|
$
|
30,421
|
|
$
|
34,833
|
|
$
|
28,862
|
|
Taxes
|
|
$
|
703
|
|
$
|
1,500
|
|
$
|
2,910
|
|
|
|
|
|
|
|
|
|
Supplemental Schedule of Non-cash
Investing and Financing Activities
|
|
|
|
|
|
|
|
Other real estate acquired in settlement of loans
|
|
$
|
736
|
|
$
|
$
|
466
|
|
$
|
$
|
771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial
Statements.
58
Table
of Contents
1. Significant Accounting Policies
Principles
of Consolidation:
On March 3, 2008,
the Company changed its name from Leesport Financial Corp. to VIST Financial Corp. This re-branding initiative brought all the
Leesport Financial Family of Companies under one new name and brand.
The consolidated
financial statements include the accounts of VIST Financial Corp. (the Company),
a bank holding company, which has elected to be treated as a financial holding
company, and its wholly-owned subsidiaries, VIST Bank (the Bank), VIST
Insurance, LLC (VIST Insurance) and VIST Capital Management, LLC (VIST
Capital). As of December 31, 2008,
the Banks wholly-owned subsidiary was VIST Mortgage Holdings, LLC. All significant inter-company accounts and
transactions have been eliminated.
Nature
of Operations:
The Bank provides full
banking services. VIST Insurance
provides risk management services, employee benefits insurance and personal and
commercial insurance coverage through multiple insurance companies. VIST Capital provides investment advisory and
brokerage services. VIST Mortgage Holdings,
LLC provides mortgage brokerage services through its limited partnership agreements
with unaffiliated third parties involved in the real estate services
industry. First Leesport Capital Trust
I, Leesport Capital Trust II and Madison Statutory Trust I are trusts formed
for the purpose of issuing mandatory redeemable debentures on behalf of the
Company. These trusts are wholly-owned
subsidiaries of the Company, but are not consolidated for financial statement
purposes. See Junior Subordinated Debt
in Note 11 of the consolidated financial statements. The Company and the Bank are subject to the
regulations of various federal and state agencies and undergo periodic
examinations by various regulatory authorities.
Use of
Estimates:
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, the
potential impairment of goodwill and intangible assets, restricted stock, the
valuation of deferred tax assets and the determination of other-than-temporary
impairment on securities.
Significant
Group Concentrations of Credit Risk:
Most of the Companys
banking, insurance and wealth management activities are with customers located
within Berks, Schuylkill, Philadelphia, Montgomery and Delaware Counties, as
well as, within other southeastern Pennsylvania market areas. Note 5 of the consolidated financial
statements details the Companys investment securities portfolio for both
available for sale and held to maturity investments. Note 6 of the consolidated financial
statements details the Companys loan concentrations. Although the Company has a diversified loan
portfolio, its debtors ability to honor contracts is influenced by the regions
economy.
Reclassifications:
For comparative purposes,
certain prior period amounts have been reclassified to conform to the current
period presentation. These
reclassifications had no effect on net income.
Presentation
of Cash Flows:
For purposes of reporting
cash flows, cash and cash equivalents include cash and due from banks and
interest-bearing deposits in other banks.
59
Table
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Investment
Securities Impairment Evaluation:
Debt securities that
management has the positive ability and intent to hold to maturity are
classified as held-to-maturity and recorded at amortized cost. Securities classified as available for sale
are those securities that the Company intends to hold for an indefinite period
of time but not necessarily to maturity.
Any decision to sell a security classified as available for sale would
be based on various factors, including significant movement in interest rates,
changes in maturity mix of the Companys assets and liabilities, liquidity
needs, regulatory capital considerations and other similar factors. Securities available for sale are carried at
fair value. Unrealized gains and losses
are reported in other comprehensive income or loss, net of the related deferred
tax effect. Realized gains or losses,
determined on the basis of the cost of the specific securities sold, are
included in earnings. Purchased premiums
and discounts are recognized in interest income using a method which
approximates the interest method over the terms of the securities. Declines in the fair value of held-to-maturity
and available-for-sale securities below their cost that are deemed to be other
than temporary are reflected in earnings as realized losses. 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.
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. As of December 31,
2008, we owned 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 (see note 5 of the consolidated financial statements). 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.
The
Companys banking subsidiary, VIST Bank, is required to maintain certain
amounts of FHLB stock as a member of the FHLB.
These equity securities are restricted in that they can only be sold
back to the respective institutions or another member institution at par. Therefore, they are less liquid than other
tradable equity securities, their fair value is equal to amortized cost, and no
impairment write-downs have been recorded on these securities during 2008,
2007, or 2006.
Federal
Home Loan Bank Stock:
The
FHLB of Pittsburgh announced in December 2008 that it voluntarily
suspended the payment of dividends and the repurchase of excess capital stock
from member banks. The FHLB cited a
significant reduction in the level of core earnings resulting from lower
short-term interest rates, the increased cost of maintaining liquidity and
constrained access to the debt markets at attractive rates and maturities as
the main reasons for the decision to suspend dividends and the repurchase
excess capital stock. The FHLB last paid
a dividend in the third quarter of 2008.
Accounting guidance indicates that an investor in FHLB Pittsburgh
capital stock should recognize impairment if it concludes that it is not
probable that it will ultimately recover the par value of its shares. The decision of whether impairment exists is
a matter of judgment that should reflect the investors view of FHLB Pittsburghs
long-term performance, which includes factors such as its operating
performance, the severity and duration of declines in the market value of its
net assets related to its capital stock amount, its commitment to make payments
required by law or regulation and the level of such payments in relation to its
operating performance, the impact of legislation and regulatory changes on FHLB
Pittsburgh, and accordingly, on the members of FHLB Pittsburgh and its
liquidity and funding position. After
evaluating all of these considerations, the Company believes the par value of
its shares will be recovered. Future
evaluations of the above mentioned factors could result in the Company
recognizing an impairment charge.
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Table of Contents
Loans:
Loans that management has
the intent and ability to hold for the foreseeable future, or until maturity or
pay-off, generally are stated at their outstanding unpaid principal balances,
net of any deferred fees or costs on originated loans or unamortized premiums
or discounts on purchased loans. Interest income is accrued on the unpaid
principal balance. Loan origination
fees, net of certain direct origination costs, are deferred and recognized as an
adjustment of the yield (interest income) of the related loans. These amounts are generally being amortized
over the contractual life of the loan.
Discounts and premiums on purchased loans are amortized to income using
the interest method over the expected lives of the loans.
The accrual of interest
is generally discontinued when the contractual payment of principal or interest
has become 90 days past due or management has serious doubts about further
collectability of principal or interest, even though the loan is currently
performing. A loan may remain on accrual
status if it is in the process of collection and is either guaranteed or well
secured. When a loan is placed on
non-accrual status, unpaid interest credited to income in the current year is
reversed and unpaid interest accrued in prior years is charged against the
allowance for loan losses. Interest
received on non-accrual loans generally is either applied against principal or
reported as interest income, according to managements judgment as to the
collectability of principal. Generally,
loans are restored to accrual status when the obligation is brought current,
has performed in accordance with the contractual terms for a reasonable period
of time and the ultimate collectability of the total contractual principal and
interest is no longer in doubt.
Allowance
for Loan Losses:
The allowance for loan
losses is established through provisions for loan losses charged against
income. Loans deemed to be uncollectible
are charged against the allowance for loan losses, and subsequent recoveries,
if any, are credited to the allowance.
The allowance for loan
losses is maintained at a level considered adequate to provide for losses that
can be reasonably anticipated.
Managements periodic evaluation of the adequacy of the allowance is
based on the Companys past loan loss experience, known and inherent risks in
the portfolio, adverse situations that may affect the borrowers ability to
repay, the estimated value of any underlying collateral, composition of the
loan portfolio, current economic conditions, and other relevant factors. This evaluation is inherently subjective as
it requires estimates that are susceptible to significant revision as more
information becomes available.
The allowance consists of
specific, general and unallocated components.
The specific component relates to loans that are classified as either
doubtful or substandard or special mention.
For such loans that are also classified as impaired, an allowance is
established when the discounted cash flows (or collateral value or observable
market price) of the impaired loan is lower than the carrying value for that
loan. The general component covers
non-classified loans and is based on historical loss experience adjusted for
qualitative factors. An unallocated
component is maintained to cover uncertainties that could affect managements
estimate of probable losses. The
unallocated component of the allowance reflects the margin of imprecision
inherent in the underlying assumptions used in the methodologies for estimating
specific and general losses in the portfolio.
A loan is considered
impaired when, based on current information and events, it is probable that the
Bank will be unable to collect the scheduled payments of principal or interest
when due according to the contractual terms of the loan agreement. Factors considered by management in
determining impairment include payment status, collateral value and the
probability of collecting scheduled principal and interest payments when
due. Loans that experience insignificant
payment delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment shortfalls
on a case-by-case basis, taking into consideration all of the circumstances
surrounding the loan and the borrower, including the length of the delay, the
reasons for the delay, the borrowers prior payment record, and the amount of
the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan
basis for commercial and construction loans by either the present value of
expected future cash flows discounted at the loans effective interest rate,
the loans obtainable market price, or the fair value of the collateral if the
loan is collateral dependent.
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Table of Contents
Large groups of smaller
balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Bank does not separately
identify individual consumer and residential mortgage loans for impairment
disclosures, unless such loans are the subject of a restructuring agreement.
Loans
Held for Sale:
Mortgage loans originated
and intended for sale in the secondary market at the time of origination are
carried at the lower of cost or estimated fair value on an aggregate
basis. The majority of all sales are
made with 90 day recourse.
Rate
Lock Commitments:
The
Company enters into commitments to originate loans whereby the interest rate on
the loan is determined prior to funding (rate lock commitments). Rate lock commitments on mortgage loans that
are intended to be sold are considered to be derivatives. Accordingly, such commitments, along with any
related fees received from potential borrowers, are recorded at fair value in
derivative assets or liabilities, with changes in fair value recorded in the
net gain or loss on sale of mortgage loans.
Fair value is based on fees currently charged to enter into similar
agreements, and for fixed-rate commitments also considers the difference
between current levels of interest rates and the committed rates.
Foreclosed
Assets:
Foreclosed assets, which
are recorded in other assets were $263,000 and $548,000 at December 31,
2008 and 2007, respectively, include properties acquired through foreclosure or
in full or partial satisfaction of the related loan.
Foreclosed assets are
initially recorded at fair value, net of estimated selling costs, at the date
of foreclosure, establishing a new cost basis.
After foreclosure, valuations are periodically performed by management,
and the real estate is carried at the lower of carrying amount or fair value,
less estimated costs to sell. Revenue
and expense from operations and changes in the valuation allowance are included
in other expense.
Premises
and Equipment:
Land and land
improvements are stated at cost.
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation expense is calculated principally on the straight-line method over
the respective assets estimated useful lives as follows:.
|
|
Years
|
|
Buildings
and leasehold improvements
|
|
10-40
|
|
Furniture
and equipment
|
|
3-10
|
|
Transfer
of Financial Assets:
Transfers of financial
assets are accounted for as sales, when control over the assets has been
surrendered. Control over transferred
assets is deemed to be surrendered when (1) the assets have been isolated
from the Company, (2) the transferee obtains the right (free of conditions
that constrain it from taking advantage of that right) to pledge or exchange
the transferred assets and (3) the Company does not maintain effective
control over the transferred assets through an agreement to repurchase them
before their maturity.
Bank-Owned
Life Insurance:
The Bank invests in bank
owned life insurance (BOLI) as a source of funding for employee benefit
expenses. BOLI involves the purchasing
of life insurance by the Bank on a chosen group of employees. The Bank is the owner and beneficiary of the
policies and, in 2006, the Bank purchased $5 million of additional BOLI. This life insurance investment is carried at
the cash surrender value of the underlying policies in the amount of $18.6
62
Table of Contents
million and $17.9 million
at December 31, 2008 and 2007, respectively. Income from the increase in cash surrender
value of the policies is included in other income on the income statement.
Stock-Based
Compensation:
Prior to January 1,
2006, employee compensation expense under stock option plans was recognized
only if options were granted with exercise prices below the market price of the
related stock at the stock option grant date in accordance with the intrinsic
value method of Accounting Principles Board (APB) No. 25, Accounting for
Stock Issued to Employees, and related interpretations. Because the exercise price of the Companys employee
stock options always equaled the market price of the underlying stock on the
date of grant, no compensation expense was recognized on options granted. The Company adopted the provisions of SFAS No. 123,
Share-Based Payment (Revised 2004), on January 1, 2006. SFAS No. 123R eliminates the ability to
account for stock-based compensation using APB No. 25 and requires that
such transactions be recognized as compensation cost in the consolidated
statements of income based on their fair values on the measurement date, which,
for the Company, is the date of the grant.
The Company transitioned to fair-value based accounting for stock-based
compensation using the modified-prospective transition method. Under the modified-prospective method, the
Company is required to record compensation cost for new awards and to awards
modified, purchased or cancelled after January 1, 2006. Additionally, compensation cost for the
portion of non-vested awards (awards for which the requisite service has not
been rendered) that were outstanding as of January 1, 2006 will be
recognized prospectively over the remaining vesting period of such awards.
Loan
Servicing:
Capitalized servicing
rights are reported in other assets and are amortized into non-interest income
in proportion to, and over the period of, the estimated future net servicing
income of the underlying financial assets.
Servicing rights are evaluated for impairment based upon the fair value
of the rights as compared to amortized cost. Fair value is determined using
prices for similar assets with similar characteristics, when available, or
based upon discounted cash flows using market-based assumptions. Impairment is recognized through a valuation
allowance to the extent that fair value is less than the capitalized amount.
Revenue
Recognition for Insurance Activities:
Insurance revenues are
derived from commissions and fees.
Commission revenues, as well as the related premiums receivable and
payable to insurance companies, are recognized the later of the effective date
of the insurance policy or the date the client is billed, net of an allowance
for estimated policy cancellations. The
reserve for policy cancellations is periodically evaluated and adjusted as
necessary. Commission revenues related
to installment premiums are recognized as billed. Commissions on premiums billed directly by
insurance companies are generally recognized as income when received. Contingent commissions from insurance
companies are generally recognized as revenue when the data necessary to
reasonably estimate such amounts is obtained.
A contingent commission is a commission paid by an insurance company
that is based on the overall profit and/or volume of the business placed with
the insurance company. Fee income is
recognized as services are rendered.
Goodwill
and Other Intangible Assets:
The Company accounts for
goodwill and other intangible assets in accordance with SFAS No. 142, Goodwill
and Other Intangible Assets. SFAS No. 142
revised the accounting for purchased intangible assets and, in general,
requires that goodwill no longer be amortized, but rather that it be tested for
impairment on an annual basis at the reporting unit level, which is either at
the same level or one level below an operating segment. Other acquired intangible assets with finite
lives, such as purchased customer accounts, are required to be amortized over
their estimated lives. Other intangible
assets are amortized using the straight line method over estimated useful lives
of four to twenty years. The Company
periodically assesses whether events or changes in circumstances indicate that
the carrying amounts of goodwill and other intangible assets may be impaired.
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Table of Contents
Income
Taxes:
Income Taxes The
calculation of the provision for federal and state income taxes is complex and
requires the use of estimates and judgments.
In the Companys consolidated balance sheet, the Company maintains two
accruals for income taxes: the Companys income tax payable represents the
estimated amount currently due to the federal and state government and is
reported as a component of other liabilities; the Companys deferred federal
and state income tax asset or liability represents the estimated impact of
temporary differences between how the Company recognizes its assets and
liabilities under GAAP, and how such assets and liabilities are recognized
under the federal and state tax codes.
Deferred federal and
state taxes are provided on the liability method whereby deferred tax assets
are recognized for deductible temporary differences, and deferred federal and
state tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities in the financial
statements and their tax basis. Deferred
federal and state tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized.
Deferred federal and state tax assets and liabilities are adjusted
through the provision for income taxes for the effects of changes in tax laws
and rates on the date of enactment.
The effective tax rate is
based in part on the Companys interpretation of the relevant current tax
laws. The Company believes the aggregate
liabilities related to taxes are appropriately reflected in the consolidated
financial statements. The Company
reviews the appropriate tax treatment of all transactions taking into
consideration statutory, judicial, and regulatory guidance in the context of
the Companys tax positions. In
addition, the Company relies on various tax opinions, recent tax audits, and
historical experience.
From time to time, the
Company engages in business transactions that may have an effect on its tax
liabilities. Where appropriate, the
Company obtains opinions of outside experts and has assessed the relative
merits and risks of the appropriate tax treatment of business transactions
taking into account statutory, judicial, and regulatory guidance in the context
of the tax position. However, changes to
the Companys estimates of accrued taxes can occur due to changes in tax rates,
implementation of new business strategies, resolution of issues with taxing
authorities regarding previously taken tax positions and newly enacted
statutory, judicial, and regulatory guidance.
Such changes could affect the amount of our accrued taxes and could be
material to the Companys financial position and/or results of operations. (See
Note 13 of the consolidated financial statements.)
Off-Balance
Sheet Financial Instruments:
In the ordinary course of
business, the Bank has entered into off-balance sheet financial instruments
consisting of commitments to extend credit and letters of credit. Such financial instruments are recorded in
the consolidated balance sheets when they become receivable or payable.
Derivative
Financial Instruments:
The Company maintains an
overall interest rate risk-management strategy that incorporates the use of
derivative instruments to minimize significant unplanned fluctuations in
earnings that are caused by interest rate volatility. The Companys goal is to manage interest rate
sensitivity by modifying the repricing or maturity characteristics of certain
balance sheet assets and liabilities so that the net interest margin is not, on
a material basis, adversely affected by movements in interest rates. As a result of interest rate fluctuations,
hedged assets and liabilities will appreciate or depreciate in market
value. The effect of this unrealized
appreciation or depreciation will generally be offset by income or loss on the
derivative instruments that are linked to the hedged assets and
liabilities. The Company views this
strategy as a prudent management of interest rate sensitivity, such that
earnings are not exposed to undue risk presented by changes in interest rates.
By using derivative
instruments, the Company is exposed to credit and market risk. If the counterparty fails to perform, credit
risk exists to the extent of the fair value gain in a derivative. When the fair value of a derivative contract
is positive, this generally indicates that the counterparty owes the Company,
and, therefore, creates a repayment risk for the Company. When the fair value of a derivative contract
is negative, the Company
64
Table of Contents
owes the counterparty
and, therefore, it has no repayment risk.
The Company minimizes the credit (or repayment) risk in the derivative
instruments by entering into transactions with high quality counterparties.
Market risk is the
adverse effect that a change in interest rates, currency, or implied volatility
rates has on the value of a financial instrument. The Company manages the market risk
associated with interest rate contracts by establishing and monitoring limits
as to the types and degree of risk that may be undertaken. The Company periodically measures this risk
by using value-at-risk methodology.
During 2002, the Company
entered into an interest rate swap to convert its fixed rate trust preferred
securities to floating rate debt. Both
the interest rate swap and the related debt are recorded on the balance sheet
at fair value through adjustments to other expense.
During 2003, the Company
also entered into an interest rate cap agreement to limit its exposure to the
variable rate interest achieved through the interest rate swap. The interest rate cap was not designated as a
cash flow hedge and thus, it is carried on the balance sheet in other assets at
fair value through adjustments to interest expense.
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.
Advertising:
Advertising costs are
expensed as incurred.
Earnings
Per Common Share:
Basic earnings per common
share is calculated by dividing net income, less Series A Preferred Stock
dividends, 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,
dividends on the Series A Preferred Stock were immaterial and were not
included in income available for common shareholders or basic and diluted
earnings per common share.
65
Table of Contents
The Companys calculation
of earnings per share for the years ended December 31, 2008, 2007, and
2006 is as follows:
|
|
Net
|
|
Weighted
|
|
|
|
|
|
Income
|
|
Average shares
|
|
Per share
|
|
|
|
(numerator)
|
|
(denominator)
|
|
amount
|
|
|
|
(In thousands except per share data)
|
|
|
|
|
|
2008 (As Restated)
|
|
|
|
|
|
|
|
Basic
earnings per share:
|
|
|
|
|
|
|
|
Net
income available to common shareholders
|
|
$
|
565
|
|
5,689
|
|
$
|
0.10
|
|
Effect
of dilutive stock options
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share:
|
|
|
|
|
|
|
|
Net
income available to common shareholders plus assumed conversion
|
|
$
|
565
|
|
5,695
|
|
$
|
0.10
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
Basic
earnings per share:
|
|
|
|
|
|
|
|
Net
income available to common shareholders
|
|
$
|
7,470
|
|
5,672
|
|
$
|
1.32
|
|
Effect
of dilutive stock options
|
|
|
|
24
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
Diluted
earnings per share:
|
|
|
|
|
|
|
|
Net
income available to common shareholders plus assumed conversion
|
|
$
|
7,470
|
|
5,696
|
|
$
|
1.31
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
Basic
earnings per share:
|
|
|
|
|
|
|
|
Net
income available to common shareholders
|
|
$
|
9,153
|
|
5,610
|
|
$
|
1.63
|
|
Effect
of dilutive stock options
|
|
|
|
47
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
Diluted
earnings per share:
|
|
|
|
|
|
|
|
Net
income available to common shareholders plus assumed conversion
|
|
$
|
9,153
|
|
5,657
|
|
$
|
1.62
|
|
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.
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Table of Contents
The components of other
comprehensive income (loss) and related tax effects were as follows:
|
|
Years Ended December 31,
|
|
|
|
2008
(As Restated)
|
|
2007
|
|
2006
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
holding (losses) gains on available for sale securities
|
|
$
|
(17,408
|
)
|
$
|
(188
|
)
|
$
|
1,447
|
|
|
|
|
|
|
|
|
|
Reclassification
adjustment for losses (gains) realized in income
|
|
7,230
|
|
2,324
|
|
(515
|
)
|
Net
unrealized (losses) gains
|
|
(10,178
|
)
|
2,136
|
|
932
|
|
Income
tax effect
|
|
3,460
|
|
(726
|
)
|
(315
|
)
|
|
|
|
|
|
|
|
|
Other
comprehensive (loss) income
|
|
$
|
(6,718
|
)
|
$
|
1,410
|
|
$
|
617
|
|
Equity
Method Investment:
On December 29,
2003, the Bank entered into a limited partner subscription agreement with
Midland Corporate Tax Credit XVI Limited Partnership, where the Bank receives
special tax credits and other tax benefits.
The Bank subscribed to a 6.2% interest in the partnership, which is
subject to an adjustment depending on the final size of the partnership at a
purchase price of $5 million. This
investment of $3.6 million and $3.9 million is included and recorded in other
assets as of December 31, 2008 and 2007, respectively, and is not
guaranteed; therefore, it is accounted for in accordance with Statement of
Position (SOP) 78-9, Accounting for Investments in Real Estate Ventures using
the equity method.
Segment
Reporting:
The Bank acts as an
independent community financial services provider which offers traditional
banking and related financial services to individual, business and government
customers. Through its branch and
automated teller machine networks, the Bank offers a full array of commercial
and retail financial services, including the taking of time, savings and demand
deposits; the making of commercial, consumer and mortgage loans; and the
providing of other financial services.
Management does not separately allocate expenses, including the cost of
funding loan demand, between the commercial and retail operations of the
Bank. As such, discrete financial
information is not available and segment reporting for the Bank would not be
meaningful. See Note 19 for a discussion
of insurance operations, investment advisory and brokerage operations and
mortgage banking operations.
Recently
Issued Accounting Standards:
In February 2007,
the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities-Including an amendment of FASB Statement No. 115. SFAS No. 159 permits certain financial
assets and financial liabilities to be measured at fair value, using an
instrument-by-instrument election. The initial effect of adopting SFAS No. 159
must be accounted for as a cumulative-effect adjustment to opening retained
earnings for the year in which SFAS No. 159 is applied. Retrospective application of SFAS No. 159
to years preceding the effective date is not permitted. The Company elected to early adopt SFAS No. 159
as of January 1, 2007. This
adoption resulted in a one-time cumulative after-tax charge of $409,000
($619,000 pre-tax) to opening retained earnings as of January 1,
2007. See Note 18, for additional
information.
In September 2006,
the FASB issued FASB Statement No. 157, Fair Value Measurements, which
defines fair value, establishes a framework for measuring fair value under
GAAP, and expands disclosures about assets and liabilities measured at fair
value. FASB Statement No. 157 does
not change existing guidance as to whether or not an asset or liability is
carried at fair value. The new standard
provides a consistent definition of fair value which focuses on exit price and
prioritizes, within a measurement of fair value, the use of market-based inputs
over entity-specific inputs. The
standard also establishes a three-level hierarchy for fair value measurements
based upon the transparency of inputs to the valuation of an asset or liability
as of the measurement date. The standard
eliminates large position discounts for financial instruments quoted in active
markets, requires costs related to acquiring
67
Table
of Contents
financial instruments
carried at fair value to be included in earnings as incurred and requires that
an issuers credit standing be considered when measuring liabilities at fair
value. The new guidance is effective for
financial statements issued for fiscal years beginning after November 15,
2007, with early adoption permitted. In
conjunction with the early adoption of SFAS No. 159 indicated above, the
Company adopted SFAS No. 157 beginning January 1, 2007. See Note 18, for the new disclosures required
by SFAS No. 157 regarding the market-based pricing associated with assets
and liabilities carried at fair value.
No significant impact to amounts reported in the consolidated financial
position or results of operations resulted from the adoption of SFAS No. 157.
In December 2007,
the FASB issued FASB statement No. 141 (R) Business Combinations. This Statement establishes principles and
requirements for how the acquirer of a business recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
and any non-controlling interest in the acquiree. The Statement also provides guidance for
recognizing and measuring the goodwill acquired in the business combination and
determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. The guidance is effective
for fiscal years beginning after December 15, 2008. This new pronouncement will impact the
Companys accounting for business combinations completed beginning January 1,
2009.
In December 2007,
the FASB issued FASB statement No. 160 Non-controlling Interests in
Consolidated Financial Statementsan amendment of ARB No. 51. This Statement establishes accounting and
reporting standards for the non-controlling interest in a subsidiary and for
the deconsolidation of a subsidiary. The
guidance is effective for fiscal years beginning after December 15,
2008. The implementation of this
standard will not have a material impact on the Companys consolidated
financial position and results of operations.
In February 2008, the
FASB issued a FASB Staff Position (FSP) FAS 140-3, Accounting for Transfers of
Financial Assets and Repurchase Financing Transactions. This FSP addresses the issue of whether or
not these transactions should be viewed as two separate transactions or as one linked
transaction. The FSP includes a rebuttable
presumption that presumes linkage of the two transactions unless the
presumption can be overcome by meeting certain criteria. The FSP will be effective for fiscal years
beginning after November 15, 2008 and will apply only to original
transfers made after that date; early adoption will not be allowed. The implementation of this standard will not
have a material impact on the Companys consolidated financial statements.
In March 2008, the
FASB issued Statement No. 161, Disclosures about Derivative Instruments
and Hedging Activitiesan amendment of FASB Statement No. 133 (Statement
161). Statement 161 requires entities
that utilize derivative instruments to provide qualitative disclosures about
their objectives and strategies for using such instruments, as well as any
details of credit-risk-related contingent features contained within
derivatives. Statement 161 also requires
entities to disclose additional information about the amounts and location of
derivatives located within the financial statements, how the provisions of SFAS
No. 133 has been applied, and the impact that hedges have on an entitys
financial position, financial performance, and cash flows. Statement 161 is effective for fiscal years
and interim periods beginning after November 15, 2008, with early
application encouraged. The
implementation of this standard will not have a material impact on the Companys
consolidated financial position and results of operations.
In April 2008, the
FASB issued FASB Staff Position (FSP) FAS 142-3, Determination of the Useful
Life of Intangible Assets. This FSP
amends the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset
under FASB Statement No. 142, Goodwill and Other Intangible Assets (SFAS
142). The intent of this FSP is to
improve the consistency between the useful life of a recognized intangible
asset under SFAS No. 142 and the period of expected cash flows used
to measure the fair value of the asset under SFAS No. 141R, and other
GAAP. This FSP is effective for
financial statements issued for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. Early adoption is
prohibited. The implementation of this
standard will not have a material impact on the Companys consolidated
financial position and results of operations.
In May 2008, the
FASB issued SFAS No. 163, Accounting for Financial Guarantee Insurance
Contracts-an interpretation of FASB Statement No. 60 (Statement
163). This Statement clarifies how FASB
Statement No. 60, Accounting and Reporting by Insurance Enterprises,
applies to financial guarantee insurance contracts issued by insurance
enterprises, including the recognition and measurement of premium revenue and
claim liabilities. It also
68
Table
of Contents
requires expanded
disclosures about financial guarantee insurance contracts. Statement 163 is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and
all interim periods within those fiscal years, except for disclosures about the
insurance enterprises risk-management activities, which are effective the
first period (including interim periods) beginning after May 23, 2008.
Except for the required disclosures, earlier application is not permitted. The implementation of this standard will not
have a material impact on the Companys consolidated financial position and
results of operations.
In June 2008, the
FASB issued FASB Staff Position (FSP) EITF 03-6-1, Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities. This FSP clarifies that all
outstanding unvested share-based payment awards that contain rights to
non-forfeitable dividends participate in undistributed earnings with common
shareholders. Awards of this nature are
considered participating securities and the two-class method of computing basic
and diluted earnings per share must be applied.
This FSP is effective for fiscal years beginning after December 15,
2008. The implementation of this
standard will not have a material impact on the Companys consolidated
financial position and results of operations.
In September 2008,
the FASB issued FSP SFAS 133-1 and FIN 45-4, Disclosures about Credit
Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133
and FASB Interpretation No. 45; and Clarification of the Effective Date of
FASB Statement No. 161 (FSP SFAS 133-1 and FIN 45-4). FSP SFAS 133-1 and FIN 45-4 amends and
enhances disclosure requirements for sellers of credit derivatives and financial
guarantees. It also clarifies that the
disclosure requirements of SFAS No. 161 are effective for quarterly
periods beginning after November 15, 2008, and fiscal years that include
those periods. FSP SFAS 133-1 and FIN
45-4 are effective for reporting periods (annual or interim) ending after November 15,
2008. The implementation of this
standard did not have a material impact on the Companys consolidated financial
position and results of operations.
In November 2008,
the SEC released a proposed roadmap regarding the potential use by U.S. issuers
of financial statements prepared in accordance with International Financial
Reporting Standards (IFRS). IFRS is a comprehensive series of accounting
standards published by the International Accounting Standards Board (IASB).
Under the proposed roadmap, the Company may be required to prepare financial
statements in accordance with IFRS as early as 2014. The SEC will make a determination in 2011
regarding the mandatory adoption of IFRS. The Company is currently assessing
the impact that this potential change would have on its consolidated financial
statements, and it will continue to monitor the development of the potential
implementation of IFRS.
In December 2008,
the FASB issued FSP SFAS 140-4 and FASB Interpretation (FIN) 46(R)-8, Disclosures
by Public Entities (Enterprises) about Transfers of Financial Assets and
Interests in Variable Interest Entities (FSP SFAS 140-4 and FIN 46(R)-8). FSP
SFAS 140-4 and FIN 46(R)-8 amends FASB SFAS 140 Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, to require
public entities to provide additional disclosures about transfers of financial
assets. It also amends FIN 46(R), Consolidation of Variable Interest Entities,
to require public enterprises, including sponsors that have a variable interest
in a variable interest entity, to provide additional disclosures about their
involvement with variable interest entities. Additionally, this FSP requires
certain disclosures to be provided by a public enterprise that is (a) a
sponsor of a qualifying special purpose entity (SPE) that holds a variable
interest in the qualifying SPE but was not the transferor of financial assets
to the qualifying SPE and (b) a servicer of a qualifying SPE that holds a
significant variable interest in the qualifying SPE but was not the transferor
of financial assets to the qualifying SPE. The disclosures required by FSP SFAS
140-4 and FIN 46(R)-8 are intended to provide greater transparency to financial
statement users about a transferors continuing involvement with transferred
financial assets and an enterprises involvement with variable interest
entities and qualifying SPEs. FSP SFAS 140-4 and FIN 46(R) are effective
for reporting periods (annual or interim) ending after December 15,
2008.
The implementation of this
standard did not have a material impact on the Companys consolidated financial
position and results of operations.
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.
69
Table
of Contents
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,
however, see note 5 of the consolidated financial statements for a further
discussion.
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 year ended December 31, 2008 previously filed in the
Companys Annual Report on Form 10-K for the year ended December 31,
2008.
The
following is a summary of the adjustments to our previously issued consolidated
balance sheet as of December 31, 2008:
70
Table
of Contents
VIST FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands, except per share data)
|
|
December 31,
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
|
|
|
2008
|
|
|
|
As
Reported
|
|
Adjustments
|
|
Reclassifications
|
|
As
Restated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
18,964
|
|
|
|
|
|
$
|
18,964
|
|
Interest-bearing deposits in banks
|
|
320
|
|
|
|
|
|
320
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
19,284
|
|
|
|
|
|
19,284
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for sale
|
|
2,283
|
|
|
|
|
|
2,283
|
|
Securities available for sale (a)
|
|
232,380
|
|
|
|
(5,715
|
)
|
226,665
|
|
Securities held to maturity, fair value 2008 -
$1,926; 2007 - $3,100
|
|
3,060
|
|
|
|
|
|
3,060
|
|
Federal Home Loan Bank stock (a)
|
|
|
|
|
|
5,715
|
|
5,715
|
|
Loans, net of allowance for loan losses 2008 -
$8,124; 2007 - $7,264
|
|
878,181
|
|
|
|
|
|
878,181
|
|
Premises and equipment, net
|
|
6,591
|
|
|
|
|
|
6,591
|
|
Identifiable intangible assets
|
|
4,833
|
|
|
|
|
|
4,833
|
|
Goodwill
|
|
39,732
|
|
|
|
|
|
39,732
|
|
Bank owned life insurance
|
|
18,552
|
|
|
|
|
|
18,552
|
|
Other assets (b)
|
|
19,968
|
|
1,206
|
|
|
|
21,174
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,224,864
|
|
$
|
1,206
|
|
|
|
$
|
1,226,070
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS
EQUITY
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
Non-interest bearing
|
|
$
|
108,645
|
|
|
|
|
|
$
|
108,645
|
|
Interest bearing
|
|
741,955
|
|
|
|
|
|
741,955
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
850,600
|
|
|
|
|
|
850,600
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold under agreements to repurchase
|
|
120,086
|
|
|
|
|
|
120,086
|
|
Federal funds purchased
|
|
53,424
|
|
|
|
|
|
53,424
|
|
Long-term debt
|
|
50,000
|
|
|
|
|
|
50,000
|
|
Junior subordinated debt, at fair value as of
December 31, 2008 (c)
|
|
19,711
|
|
(1,451
|
)
|
|
|
18,260
|
|
Other liabilities (b)
|
|
8,554
|
|
1,517
|
|
|
|
10,071
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
1,102,375
|
|
66
|
|
|
|
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 at December 31, 2008
and no shares at December 31, 2007; Less: discount of $2,307 at
December 31, 2008 and no discount at December 31, 2007
|
|
22,693
|
|
|
|
|
|
22,693
|
|
Common stock, $5.00 par value; authorized
20,000,000 shares; issued: 5,768,429 shares at December 31, 2008 and
5,746,998 shares at December 31, 2007
|
|
28,842
|
|
|
|
|
|
28,842
|
|
Stock Warrants
|
|
2,307
|
|
|
|
|
|
2,307
|
|
Surplus
|
|
64,349
|
|
|
|
|
|
64,349
|
|
Retained earnings (d)
|
|
14,383
|
|
374
|
|
|
|
14,757
|
|
Accumulated other comprehensive loss (e)
|
|
(8,600
|
)
|
766
|
|
|
|
(7,834
|
)
|
Treasury stock; 68,354 shares at December 31,
2008 and 89,853 shares at December 31, 2007, at cost
|
|
(1,485
|
)
|
|
|
|
|
(1,485
|
)
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
122,489
|
|
1,140
|
|
|
|
123,629
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity
|
|
$
|
1,224,864
|
|
$
|
1,206
|
|
|
|
$
|
1,226,070
|
|
(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 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.
71
Table
of Contents
The
following is a summary of the adjustments to our previously issued consolidated
statements of income for the three months and year ended December 31,
2008:
VIST FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2008
(Amounts in thousands, except per share data)
|
|
Three
Months Ended
|
|
Twelve
Months Ended
|
|
|
|
December 31,
2008
|
|
|
|
|
|
December 31,
2008
|
|
December 31,
2008
|
|
|
|
|
|
December 31,
2008
|
|
|
|
As
Reported
|
|
Adjustments
|
|
Reclassifications
|
|
As
Restated
|
|
As
Reported
|
|
Adjustments
|
|
Reclassifications
|
|
As
Restated
|
|
|
|
(unaudited)
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and fees on loans
|
|
$
|
13,049
|
|
|
|
|
|
$
|
13,049
|
|
$
|
54,532
|
|
|
|
|
|
$
|
54,532
|
|
Interest
on securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
2,733
|
|
|
|
|
|
2,733
|
|
9,942
|
|
|
|
|
|
9,942
|
|
Tax-exempt
|
|
280
|
|
|
|
|
|
280
|
|
959
|
|
|
|
|
|
959
|
|
Dividend
income (f)
|
|
26
|
|
|
|
3
|
|
29
|
|
533
|
|
|
|
(140
|
)
|
393
|
|
Other
interest income
|
|
3
|
|
|
|
|
|
3
|
|
12
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
16,091
|
|
|
|
3
|
|
16,094
|
|
65,978
|
|
|
|
(140
|
)
|
65,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
on deposits
|
|
5,351
|
|
|
|
|
|
5,351
|
|
20,874
|
|
|
|
|
|
20,874
|
|
Interest
on short-term borrowings
|
|
117
|
|
|
|
|
|
117
|
|
1,826
|
|
|
|
|
|
1,826
|
|
Interest
on securities sold under agreements to repurchase
|
|
1,111
|
|
|
|
|
|
1,111
|
|
4,128
|
|
|
|
|
|
4,128
|
|
Interest
on long-term debt
|
|
562
|
|
|
|
|
|
562
|
|
2,372
|
|
|
|
|
|
2,372
|
|
Interest
on junior subordinated debt
|
|
355
|
|
|
|
|
|
355
|
|
1,437
|
|
|
|
|
|
1,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
7,496
|
|
|
|
|
|
7,496
|
|
30,637
|
|
|
|
|
|
30,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
8,595
|
|
|
|
3
|
|
8,598
|
|
35,341
|
|
|
|
(140
|
)
|
35,201
|
|
Provision
for loan losses
|
|
2,250
|
|
|
|
|
|
2,250
|
|
4,835
|
|
|
|
|
|
4,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income after provision for loan losses
|
|
6,345
|
|
|
|
3
|
|
6,348
|
|
30,506
|
|
|
|
(140
|
)
|
30,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
service fees
|
|
775
|
|
|
|
|
|
775
|
|
2,964
|
|
|
|
|
|
2,964
|
|
Mortgage
banking activities
|
|
87
|
|
|
|
|
|
87
|
|
897
|
|
|
|
|
|
897
|
|
Commissions
and fees from insurance sales
|
|
2,761
|
|
|
|
|
|
2,761
|
|
11,284
|
|
|
|
|
|
11,284
|
|
Brokerage
and investment advisory commissions and fees
|
|
163
|
|
|
|
|
|
163
|
|
813
|
|
|
|
|
|
813
|
|
Earnings
on investment in life insurance
|
|
187
|
|
|
|
|
|
187
|
|
690
|
|
|
|
|
|
690
|
|
Gains
on sale of loans
|
|
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
47
|
|
Net
realized gains (losses) on sales of securities
|
|
(436
|
)
|
|
|
|
|
(436
|
)
|
(7,230
|
)
|
|
|
|
|
(7,230
|
)
|
Other
Income (f), (g)
|
|
409
|
|
540
|
|
(3
|
)
|
946
|
|
1,808
|
|
566
|
|
140
|
|
2,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
|
|
3,946
|
|
540
|
|
(3
|
)
|
4,483
|
|
11,273
|
|
566
|
|
140
|
|
11,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
5,569
|
|
|
|
|
|
5,569
|
|
22,078
|
|
|
|
|
|
22,078
|
|
Occupancy
expense
|
|
1,422
|
|
|
|
|
|
1,422
|
|
4,707
|
|
|
|
|
|
4,707
|
|
Furniture
and equipment expense
|
|
686
|
|
|
|
|
|
686
|
|
2,690
|
|
|
|
|
|
2,690
|
|
Marketing
and advertising expense
|
|
233
|
|
|
|
|
|
233
|
|
1,635
|
|
|
|
|
|
1,635
|
|
Amortization
of identifiable intangible assets
|
|
171
|
|
|
|
|
|
171
|
|
629
|
|
|
|
|
|
629
|
|
Professional
services
|
|
797
|
|
|
|
|
|
797
|
|
2,594
|
|
|
|
|
|
2,594
|
|
Outside
processing
|
|
875
|
|
|
|
|
|
875
|
|
3,334
|
|
|
|
|
|
3,334
|
|
Insurance
expense
|
|
440
|
|
|
|
|
|
440
|
|
1,262
|
|
|
|
|
|
1,262
|
|
Other
expense
|
|
1,276
|
|
|
|
|
|
1,276
|
|
4,709
|
|
|
|
|
|
4,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
11,469
|
|
|
|
|
|
11,469
|
|
43,638
|
|
|
|
|
|
43,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
(1,178
|
)
|
540
|
|
|
|
(638
|
)
|
(1,859
|
)
|
566
|
|
|
|
(1,293
|
)
|
Income
taxes (h)
|
|
(2,950
|
)
|
183
|
|
|
|
(2,767
|
)
|
(2,050
|
)
|
192
|
|
|
|
(1,858
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,772
|
|
$
|
357
|
|
$
|
|
|
$
|
2,129
|
|
$
|
191
|
|
$
|
374
|
|
$
|
|
|
$
|
565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER SHARE DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
shares outstanding
|
|
5,697,280
|
|
|
|
|
|
5,697,280
|
|
5,689,421
|
|
|
|
|
|
5,689,421
|
|
Basic
earnings per share
|
|
$
|
0.31
|
|
$
|
0.07
|
|
|
|
$
|
0.38
|
|
$
|
0.03
|
|
$
|
0.07
|
|
|
|
$
|
0.10
|
|
Average
shares outstanding for diluted earnings per share
|
|
5,697,280
|
|
|
|
|
|
5,697,280
|
|
5,689,421
|
|
|
|
|
|
5,689,421
|
|
Diluted
earnings per share
|
|
$
|
0.31
|
|
$
|
0.07
|
|
|
|
$
|
0.38
|
|
$
|
0.03
|
|
$
|
0.07
|
|
|
|
$
|
0.10
|
|
Cash
dividends declared per share
|
|
$
|
0.10
|
|
|
|
|
|
$
|
0.10
|
|
$
|
0.50
|
|
|
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
3. Acquisitions Including Goodwill and
Other Intangible Assets
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 Consultings
operations have been included in the Companys consolidated financial
statements since September 2, 2008.
72
Table
of Contents
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, the Company amortizes other intangible assets
over the estimated remaining life of each respective asset. Amortizable intangible assets were composed
of the following:
|
|
December 31, 2008
|
|
December 31, 2007
|
|
|
|
Gross
|
|
|
|
Gross
|
|
|
|
|
|
Carrying
|
|
Accumulated
|
|
Carrying
|
|
Accumulated
|
|
|
|
Amount
|
|
Amortization
|
|
Amount
|
|
Amortization
|
|
|
|
(In thousands)
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
Purchase
of client accounts (20 year weighted average useful life)
|
|
$
|
4,805
|
|
$
|
992
|
|
$
|
3,295
|
|
$
|
802
|
|
Employment
contracts (7 year weighted average useful life)
|
|
1,135
|
|
968
|
|
1,075
|
|
810
|
|
Assets
under management (20 year weighted average useful life)
|
|
184
|
|
58
|
|
184
|
|
49
|
|
Trade
name (20 year weighted average useful life)
|
|
196
|
|
196
|
|
196
|
|
189
|
|
Core
deposit intangible (7 year weighted average useful life)
|
|
1,852
|
|
1,125
|
|
1,852
|
|
860
|
|
Total
|
|
$
|
8,172
|
|
$
|
3,339
|
|
$
|
6,602
|
|
$
|
2,710
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Amortization Expense:
|
|
|
|
|
|
|
|
|
|
For
the year ended December 31, 2008
|
|
$
|
629
|
|
|
|
|
|
|
|
For
the year ended December 31, 2007
|
|
622
|
|
|
|
|
|
|
|
For
the year ended December 31, 2006
|
|
636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Amortization Expense:
|
|
|
|
|
|
|
|
|
|
For
the year ending December 31, 2009
|
|
648
|
|
|
|
|
|
|
|
For
the year ending December 31, 2010
|
|
534
|
|
|
|
|
|
|
|
For
the year ending December 31, 2011
|
|
461
|
|
|
|
|
|
|
|
For
the year ending December 31, 2012
|
|
249
|
|
|
|
|
|
|
|
For
the year ending December 31, 2013
|
|
249
|
|
|
|
|
|
|
|
The changes in the
carrying amount of goodwill for the years ended December 31, 2008 and 2007
are as follows:
73
Table
of Contents
|
|
Banking and
|
|
|
|
Brokerage and
|
|
|
|
|
|
Financial
|
|
|
|
Investment
|
|
|
|
|
|
Services
|
|
Insurance
|
|
Services
|
|
Total
|
|
|
|
(In thousands)
|
|
Balance
as of January 1, 2007
|
|
$
|
27,768
|
|
$
|
10,400
|
|
$
|
1,021
|
|
$
|
39,189
|
|
Contingent
payments during the year 2007
|
|
|
|
|
|
|
|
|
|
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
|
|
4.
Restrictions on Cash and Due from
Banks
The Federal Reserve Bank
requires the Bank to maintain average reserve balances. For the year 2008 and 2007, the average of
the daily reserve balances required to be maintained approximated $2.6 million
and $1.2 million, respectively.
74
Table
of Contents
5.
Securities Available For Sale and
Securities Held to Maturity
The following table
details the amortized cost and estimated fair values of securities available
for sale and securities held to maturity were as follows at December 31,
2008 and 2007:
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
Securities Available For Sale
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
|
|
(In thousands)
|
|
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
Obligations
of U.S. Government agencies and corporations
|
|
$
|
9,438
|
|
$
|
110
|
|
$
|
(217
|
)
|
$
|
9,331
|
|
Mortgage-backed
debt securities
|
|
185,945
|
|
3,215
|
|
(3,983
|
)
|
185,177
|
|
State
and municipal obligations
|
|
26,582
|
|
42
|
|
(1,591
|
)
|
25,033
|
|
Other
debt securities
|
|
13,172
|
|
|
|
(8,682
|
)
|
4,490
|
|
Equity
securities
|
|
3,398
|
|
34
|
|
(798
|
)
|
2,634
|
|
|
|
$
|
238,535
|
|
$
|
3,401
|
|
$
|
(15,271
|
)
|
$
|
226,665
|
|
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
Obligations
of U.S. Government agencies and corporations
|
|
$
|
5,889
|
|
$
|
11
|
|
$
|
(2
|
)
|
$
|
5,898
|
|
Mortgage-backed
debt securities
|
|
136,103
|
|
683
|
|
(587
|
)
|
136,199
|
|
State
and municipal obligations
|
|
20,582
|
|
20
|
|
(199
|
)
|
20,403
|
|
Other
debt securities
|
|
14,415
|
|
|
|
(494
|
)
|
13,921
|
|
Equity
securities
|
|
11,183
|
|
135
|
|
(1,258
|
)
|
10,060
|
|
|
|
$
|
188,172
|
|
$
|
849
|
|
$
|
(2,540
|
)
|
$
|
186,481
|
|
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
Securities Held To Maturity
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
Corporate
debt securities
|
|
$
|
3,060
|
|
$
|
2
|
|
$
|
(1,136
|
)
|
$
|
1,926
|
|
|
|
$
|
3,060
|
|
$
|
2
|
|
$
|
(1,136
|
)
|
$
|
1,926
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
Corporate
debt securities
|
|
$
|
3,078
|
|
$
|
79
|
|
$
|
(57
|
)
|
$
|
3,100
|
|
|
|
$
|
3,078
|
|
$
|
79
|
|
$
|
(57
|
)
|
$
|
3,100
|
|
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-K.
Proceeds from sales of
investment securities available-for-sale were $91.4 million in 2008, $118.7
million in 2007 and $8.0 million in 2006.
The following gross gains
and losses were realized on sales of securities available for sale in 2008,
2007 and 2006 (in thousands):
75
Table
of Contents
Year
|
|
Gains
|
|
Losses
|
|
Net
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
2008
|
|
$
|
490
|
|
$
|
(7,720
|
)
|
$
|
(7,230
|
)
|
2007
|
|
$
|
377
|
|
$
|
(2,701
|
)
|
$
|
(2,324
|
)
|
2006
|
|
$
|
519
|
|
$
|
(4
|
)
|
$
|
515
|
|
Securities with a market
value of $182.8 million and $173.4 million at December 31, 2008 and 2007,
respectively, were pledged to secure securities sold under agreements to
repurchase, public deposits and for other purposes as required or permitted by
law.
The federal income tax
provision includes ($2,460,000), ($790,000) and $175,000 in 2008, 2007 and
2006, respectively, of federal income taxes related to net gains and losses on
the sale of securities.
The following table shows
the gross unrealized losses and fair value of securities, aggregated by
investment category and length of time that individual securities have been in
a continuous unrealized loss position, at December 31, 2008 and 2007:
76
Table
of Contents
|
|
Less than 12 Months
|
|
12 Months or More
|
|
Total
|
|
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
|
|
(In thousands)
|
|
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
of U.S. Government agencies and corporations
|
|
$
|
5,707
|
|
$
|
(217
|
)
|
$
|
|
|
$
|
|
|
$
|
5,707
|
|
$
|
(217
|
)
|
Mortgage-backed
debt securities
|
|
28,084
|
|
(2,554
|
)
|
4,523
|
|
(1,429
|
)
|
32,607
|
|
(3,983
|
)
|
State
and municipal obligations
|
|
22,740
|
|
(1,591
|
)
|
|
|
|
|
22,740
|
|
(1,591
|
)
|
Other
debt securities
|
|
1,065
|
|
(157
|
)
|
3,425
|
|
(8,525
|
)
|
4,490
|
|
(8,682
|
)
|
Equity
securities
|
|
162
|
|
(53
|
)
|
1,778
|
|
(745
|
)
|
1,940
|
|
(798
|
)
|
Total
|
|
$
|
57,758
|
|
$
|
(4,572
|
)
|
$
|
9,726
|
|
$
|
(10,699
|
)
|
$
|
67,484
|
|
$
|
(15,271
|
)
|
|
|
Less than 12 Months
|
|
12 Months or More
|
|
Total
|
|
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
|
|
(In thousands)
|
|
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Held to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
debt securities
|
|
$
|
881
|
|
$
|
(1,136
|
)
|
$
|
|
|
$
|
|
|
$
|
881
|
|
$
|
(1,136
|
)
|
Total
|
|
$
|
881
|
|
$
|
(1,136
|
)
|
$
|
|
|
$
|
|
|
$
|
881
|
|
$
|
(1,136
|
)
|
|
|
Less than 12 Months
|
|
12 Months or More
|
|
Total
|
|
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
|
|
(In thousands)
|
|
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
of U.S. Government agencies and corporations
|
|
$
|
|
|
$
|
|
|
$
|
998
|
|
$
|
(2
|
)
|
$
|
998
|
|
$
|
(2
|
)
|
Mortgage-backed
debt securities
|
|
22,708
|
|
(109
|
)
|
27,685
|
|
(478
|
)
|
50,393
|
|
(587
|
)
|
State
and municipal obligations
|
|
11,449
|
|
(187
|
)
|
350
|
|
(12
|
)
|
11,799
|
|
(199
|
)
|
Other
debt securities
|
|
1,483
|
|
(16
|
)
|
10,764
|
|
(478
|
)
|
12,247
|
|
(494
|
)
|
Equity
securities
|
|
1,046
|
|
(306
|
)
|
5,767
|
|
(952
|
)
|
6,813
|
|
(1,258
|
)
|
Total
|
|
$
|
36,686
|
|
$
|
(618
|
)
|
$
|
45,564
|
|
$
|
(1,922
|
)
|
$
|
82,250
|
|
$
|
(2,540
|
)
|
|
|
Less than 12 Months
|
|
12 Months or More
|
|
Total
|
|
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
|
|
(In thousands)
|
|
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Held to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
debt securities
|
|
$
|
|
|
$
|
|
|
$
|
1,000
|
|
$
|
(57
|
)
|
$
|
1,000
|
|
$
|
(57
|
)
|
Total
|
|
$
|
|
|
$
|
|
|
$
|
1,000
|
|
$
|
(57
|
)
|
$
|
1,000
|
|
$
|
(57
|
)
|
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. As of December 31,
2008, we owned single issue and pooled trust preferred securities of other
financial institutions and private label
77
Table
of Contents
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.
At December 31,
2008, there were 65 securities with unrealized losses in the less than twelve
month category and 37 securities with unrealized losses in the twelve month or
more category.
A.
Obligations of U. S.
Government Agencies and Corporations
. The unrealized losses on the Companys
investments in obligations of U S Government agencies were caused by
illiquidity and dislocation in the market as a result of the ongoing credit
crisis. At December 31, 2008, U. S.
Government agencies and corporations bonds represented 4.1% of the total
available for sale securities held in the investment securities portfolio. The Company purchased those investments at
par or at a discount relative to their face amount and the contractual cash
flows are guaranteed by an agency of the U S Government. Because the Company has the ability and intent
to hold these investments until a recovery of fair value, which may be
maturity, the Company does not consider those investments to be
other-than-temporarily impaired at December 31, 2008. Future
evaluations of the above mentioned factors could result in the Company
recognizing an impairment charge.
B.
Mortgage-Backed Debt
Securities
. The
unrealized losses on the Companys investments in federal agency
mortgage-backed securities and corporate (non-agency) collateralized mortgage
obligations were primarily caused by illiquidity and dislocation in the market
as a result of the ongoing credit crisis.
At December 31, 2008, federal agency mortgage-backed securities
represented 62.1% of the total fair value of available for sale securities held
in the investment securities portfolio and corporate collateralized mortgage
obligations represented 19.6% of the total fair value of available for sale
securities held in the investment securities portfolio. The Company purchased those securities at a
price relative to the market at the time of the purchase. The contractual cash flows of those federal
agency mortgage-backed securities are guaranteed by the US Government.
For corporate
(non-agency) collateralized mortgage obligations, the Company uses a model to
further analyze each issue to determine whether or not the current unrealized
losses are other-than-temporary. This
framework applies stress to each issue based on current market data detailing
underlying collateral, delinquency, bankruptcy, foreclosure and real estate
owned (REO). Each category is assigned a
standard default and severity rate to derive a total custom credit coverage
rate. This custom credit coverage rate
is compared to the current credit support along with various other criteria
including: percent decline in fair value; credit rating downgrades; probability
of repayment of amounts due; changes in average life and the Companys ability
and intent to hold the securities to recovery of its full value to determine
whether the issue is other-than-temporarily impaired.
Because the decline in
the market value of mortgage-backed debt securities is primarily attributable
to illiquidity and not credit quality, and because the Company has the ability
and intent to hold those investments until a recovery of fair value, which may
be maturity, the Company does not consider those investments to be
other-than-temporarily impaired at December 31, 2008. Future
evaluations of the above mentioned factors could result in the Company
recognizing an impairment charge.
C.
State and Municipal
Obligations
. The
unrealized losses on the Companys investments in state and municipal
obligations were primarily caused by illiquidity, dislocation in the market as
a result of the ongoing credit crisis and the deterioration of the
creditworthiness of certain monoline bond insurers. At December 31, 2008, state and
municipal obligation bonds represented 11.0% of the total fair value of
available for sale securities held in the investment securities portfolio. The Company purchased those obligations at a
price relative to the market at the time of the purchase, and the tax
advantaged benefit of the interest earned on these investments reduce the
Companys federal tax liability. Because
the Company has the ability and intent to hold those investments until a
recovery of fair value, which may be maturity, the Company does not consider
those investments to be other-than-temporarily impaired at December 31,
2008. Future evaluations of the above mentioned factors could result in the
Company recognizing an impairment charge.
78
Table of Contents
D.
Other Debt Securities
.
Included in other debt securities at December 31, 2008, were one
asset-backed security which represented 0.1% of the total fair value of
available for sale securities, three corporate debt issues representing 1.4% of
the total fair value of available for sale securities, three single issue trust
preferred securities (TRUPS) representing 0.2% and 97.0% of the total fair
value of available for sale securities and the total held to maturity
securities, respectively, and ten pooled TRUPS representing 0.3% and 3.0% of
the total fair value of available for sale securities and the total held to
maturity securities, respectively.
The Companys unrealized
losses on other debt securities relate primarily to its investment in pooled
TRUPS. The decline in value is primarily
attributable to temporary illiquidity and the financial crisis affecting these
markets and not necessarily the expected cash flows of the individual
securities. Due to the illiquidity in
the market, it is unlikely that the Company would be able to recover its
investment in these securities if the Company sold the securities at this time. Because the Company has analyzed the cash
flow characteristics of the securities and has the ability and intent to hold
these securities until a recovery of fair value, which may be at maturity; and
determined that there was no adverse change in the expected cash flows, it does
not consider the investment in these securitized assets to be
other-than-temporarily impaired at December 31, 2008.
Investments in other debt
securities include $16.2 million book value of single issue and pooled TRUPS of
other financial institutions. The
issuers in these securities are primarily banks, but some of the pools do
include a limited number of insurance companies. For pooled TRUPS, the Company uses a third
party OTTI evaluation model to compare the present value of current cash flows
to the previous estimate to ensure there are no adverse changes in cash flows
during the quarter. The OTTI model
considers the structure and term of the CDO and the financial condition of the
underlying issuers. Specifically, the
model details interest rates, principal balances of note classes and underlying
issuers, the timing and amount of interest and principal payments of the
underlying issuers, and the allocation of the payments to the note
classes. The current estimate of cash
flows is based on the most recent trustee reports and any other relevant market
information including announcements of interest payment deferrals or defaults
of underlying TRUPS. Management
assumptions used in the model include expected future default rates and
prepayments. The Company assumes no recoveries
on defaults and treats all interest payment deferrals as defaults. In addition, the model stresses each CDO,
or makes assumptions more severe than expected activity, to determine the
degree to which assumptions could deteriorate underlying collateral before the
CDO could break yield and no longer fully support repayments. At December 31, 2008, the cash flow
model indicated no OTTI impairment charge.
Future evaluations of the above
mentioned factors could result in the Company recognizing an impairment charge.
E.
Equity Securities
.
Included in equity securities available for sale at December 31,
2008, were equity investments in 30 financial services companies. The Company owns 1 qualifying Community
Reinvestment Act (CRA) equity investment with an amortized cost and fair
value of approximately $1.0 million, respectively. The remaining 29 equity securities have an
average amortized cost of approximately $83,000 and an average fair value of
approximately $56,000. While $1.8
million in fair value of the equity securities has been below amortized cost
for a period of more than twelve months, the Company believes the decline in
market value of the equity investment in financial services companies is
primarily attributable to changes in market pricing and not fundamental changes
in the earning potential of the individual companies. The Company has the intent and ability to
retain its investment in these securities for a period of time sufficient to
allow for any anticipated recovery in market value. The Company does not consider its equity
securities to be other-than-temporarily-impaired as December 31, 2008.
79
Table
of Contents
The following table
details the amortized cost and fair value of securities as of December 31,
2008, by contractual maturity, are shown below.
Expected maturities may differ from contractual maturities because
certain securities may be called or prepaid without penalty.
|
|
Securities
Available for Sale
|
|
Securities
Held to Maturity
|
|
|
|
Amortized
|
|
Fair
|
|
Amortized
|
|
Fair
|
|
|
|
Cost
|
|
Value
|
|
Cost
|
|
Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Due
in one year or less
|
|
$
|
1,500
|
|
$
|
1,470
|
|
$
|
|
|
$
|
|
|
Due
after one year through five years
|
|
1,542
|
|
825
|
|
|
|
|
|
Due
after five years through ten years
|
|
1,421
|
|
1,277
|
|
|
|
|
|
Due
after ten years
|
|
44,729
|
|
35,282
|
|
3,060
|
|
1,926
|
|
Mortgage-backed
securities
|
|
185,945
|
|
185,177
|
|
|
|
|
|
Equity
securities
|
|
3,398
|
|
2,634
|
|
|
|
|
|
|
|
$
|
238,535
|
|
$
|
226,665
|
|
$
|
3,060
|
|
$
|
1,926
|
|
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-K.
6.
Loans
The components of loans
were as follows:
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
Residential
real estate - 1 to 4 family
|
|
$
|
185,866
|
|
$
|
198,607
|
|
Residential
real estate - multi family
|
|
34,869
|
|
33,457
|
|
Commercial
|
|
174,219
|
|
156,396
|
|
Commercial,
secured by real estate
|
|
326,442
|
|
294,932
|
|
Construction
|
|
89,556
|
|
79,414
|
|
Consumer
|
|
3,995
|
|
5,690
|
|
Home
equity lines of credit
|
|
72,137
|
|
53,405
|
|
|
|
887,084
|
|
821,901
|
|
Net
deferred loan fees
|
|
(779
|
)
|
(903
|
)
|
Allowance
for loan losses
|
|
(8,124
|
)
|
(7,264
|
)
|
Loans,
net of allowance for loan losses
|
|
$
|
878,181
|
|
$
|
813,734
|
|
80
Table
of Contents
Changes in the allowance
for loan losses were as follows:
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
(In thousands)
|
|
Balance,
beginning
|
|
$
|
7,264
|
|
$
|
7,611
|
|
$
|
7,619
|
|
Provision
for loan losses
|
|
4,835
|
|
998
|
|
1,084
|
|
Loans
charged off
|
|
(4,073
|
)
|
(1,548
|
)
|
(1,305
|
)
|
Recoveries
|
|
98
|
|
203
|
|
213
|
|
Balance,
ending
|
|
$
|
8,124
|
|
$
|
7,264
|
|
$
|
7,611
|
|
The recorded investment
in impaired loans not requiring an allowance for loan losses was $3.2 million
at December 31, 2008 and $6.0 million at December 31, 2007. The recorded investment in impaired loans
requiring an allowance for loan losses was $7.5 million and $2.1 million at December 31,
2008 and 2007, respectively. At December 31,
2008 and 2007, the related allowance for loan losses associated with those
loans was $2.3 million and $1.3 million, respectively. For the years ended December 31, 2008,
2007 and 2006, the average recorded investment in these impaired loans was $8.8
million, $8.9 million and $9.9 million, respectively; and the interest income
recognized on impaired loans was $33,000 for 2008, $407,000 for 2007 and
$702,000 for 2006.
Loans on which the
accrual of interest has been discontinued amounted to $10.7 million and $3.6
million at December 31, 2008 and 2007, respectively. Loan balances past due 90 days or more and
still accruing interest but which management expects will eventually be paid in
full, amounted to $140,000 and $3.0 million at December 31, 2008 and 2007,
respectively.
7.
Loan Servicing
Loans serviced for others
are not included in the accompanying consolidated balance sheets. The unpaid principal balance of these loans
as of December 31, 2008 and 2007 was $19.7 million and $22.2 million,
respectively.
The balance of
capitalized servicing rights included in other assets at December 31, 2008
and 2007, was $295,000 and $491,000, respectively. The fair value of these rights was $295,000
and $491,000, respectively. The fair
value of servicing rights was determined using a 9.5 percent discount rate for
2008 and 2007.
The following summarizes
mortgage servicing rights capitalized and amortized:
|
|
Years Ended
|
|
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
(In thousands)
|
|
Mortgage
servicing rights capitalized
|
|
$
|
6
|
|
$
|
8
|
|
$
|
18
|
|
Mortgage
servicing rights amortized
|
|
$
|
202
|
|
$
|
143
|
|
$
|
77
|
|
81
Table
of Contents
8.
Premises and Equipment
Components of premises
and equipment were as follows:
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
(In thousands)
|
|
Land
and land improvements
|
|
$
|
263
|
|
$
|
263
|
|
Buildings
|
|
873
|
|
865
|
|
Leasehold
improvements
|
|
3,910
|
|
3,463
|
|
Furniture
and equipment
|
|
11,567
|
|
10,879
|
|
|
|
16,613
|
|
15,470
|
|
Less
accumulated depreciation
|
|
10,022
|
|
8,578
|
|
Premises
and equipment, net
|
|
$
|
6,591
|
|
$
|
6,892
|
|
Certain facilities and
equipment are leased under various operating leases. Rental expense for these leases was $3.3
million, $2.9 million and $3.1 million for the years ended December 31,
2008, 2007 and 2006, respectively.
Future minimum rental
commitments under non-cancelable leases as of December 31, 2008 were as
follows (in thousands):
2009
|
|
$
|
2,517
|
|
2010
|
|
2,296
|
|
2011
|
|
1,860
|
|
2012
|
|
1,469
|
|
2013
|
|
1,478
|
|
Subsequent
to 2013
|
|
14,122
|
|
Total
minimum payments
|
|
$
|
23,742
|
|
9.
Deposits
The components of
deposits were as follows:
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
(In thousands)
|
|
Demand,
non-interest bearing
|
|
$
|
108,645
|
|
$
|
109,718
|
|
Demand,
interest bearing
|
|
231,504
|
|
221,071
|
|
Savings
|
|
75,706
|
|
88,151
|
|
Time,
$100,000 and over
|
|
195,812
|
|
90,906
|
|
Time,
other
|
|
238,933
|
|
202,799
|
|
Total
deposits
|
|
$
|
850,600
|
|
$
|
712,645
|
|
82
Table
of Contents
At December 31,
2008, the scheduled maturities of time deposits were as follows (in thousands):
2009
|
|
$
|
318,390
|
|
2010
|
|
73,137
|
|
2011
|
|
12,595
|
|
2012
|
|
18,628
|
|
2013
|
|
11,863
|
|
Thereafter
|
|
132
|
|
|
|
$
|
434,745
|
|
10.
Borrowings and Other Obligations
At December 31, 2008
and 2007, the Bank had purchased federal funds from the FHLB and correspondent
banks totaling $53.4 million and $118.2 million, respectively.
During 2007, the Bank
entered into securities sold under agreements to repurchase totaling $65
million. These securities sold under
agreements to repurchase have 8 to 10 year terms, carry a fixed rate or a
variable interest rate spread to the three month LIBOR rate ranging from 3.25%
to 4.85%, and, at the contractual reset dates, may either convert to a fixed
rate or variable rate loan or may be called.
During 2008, the Bank entered into securities sold under agreements to
repurchase totaling $35 million. These
securities sold under agreements to repurchase have 8 to 10 year terms, carry a
fixed rate or a variable interest rate spread to the three month LIBOR rate
ranging from 1.95% to 4.75%, and, at the contractual reset dates, may either
convert to a fixed rate or variable rate loan or may be called. Total borrowings under these repurchase
agreements were $100.0 million and $85.0 million at December 31, 2008 and
2007, respectively.
These repurchase
agreements are treated as financings with the obligations to repurchase
securities sold reflected as a liability in the balance sheet. The dollar amount of securities underlying
the agreements remains recorded as an asset, although the securities underlying
the agreements are delivered to the broker who arranged the transactions. In certain instances, the brokers may have
sold, loaned, or disposed of the securities to other parties in the normal
course of their operations, and have agreed to deliver to the Company
substantially similar securities at the maturity of the agreement. The broker/dealers who participated with the
Company in these agreements are primarily broker/dealers reporting to the
Federal Reserve Bank of New York.
Securities underlying sales of securities under repurchase agreements
consisted of investment securities that had an amortized cost of $106.2 million
and a market value of $108.3 million at December 31, 2008.
83
Table of Contents
Securities sold under
agreements to repurchase at December 31, 2008 and 2007 consisted of the
following:
|
|
|
|
|
|
Weighted
|
|
|
|
Amount
|
|
Average Rate
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(In
thousands)
|
|
|
|
|
|
Fixed
rate securities sold under agreements to repurchase maturing:
|
|
|
|
|
|
|
|
|
|
2013
|
|
$
|
|
-
|
$
|
20,000
|
(1)
|
|
%
|
4.85
|
%
|
2015
|
|
30,000
|
(2)(4)
|
15,000
|
(2)
|
2.60
|
|
3.25
|
|
2017
|
|
50,000
|
(3)
|
50,000
|
(3)
|
4.57
|
|
3.45
|
|
2018
|
|
20,000
|
(5)
|
|
|
4.75
|
|
|
|
Total
securities sold under agreements to repurchase
|
|
$
|
100,000
|
|
$
|
85,000
|
|
4.02
|
%
|
3.75
|
%
|
(1) $20
million called during 2008
(2) $15
million callable 12/26/2009
(3) $5
million callable 03/05/2009; $20 million callable 04/30/2009; $25 million callable
03/22/2009
(4) $15
million callable 01/17/2010
(5) $20
million callable 05/22/2009
In addition, the Bank
enters into agreements with bank customers as part of cash management services
where the Bank sells securities to the customer overnight with the agreement to
repurchase them at par. Securities sold
under agreements to repurchase generally mature one day from the transaction
date.
The securities underlying
the agreements are under the Banks control.
The outstanding customer balances and related information of securities
sold under agreements to repurchase are summarized as follows:
|
|
Years Ended
|
|
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
(Dollars
in thousands)
|
|
Average
balance during the year
|
|
$
|
25,000
|
|
$
|
26,781
|
|
$
|
22,014
|
|
Average
interest rate during the year
|
|
2.10
|
%
|
4.05
|
%
|
4.13
|
%
|
Weighted
average interest rate at year-end
|
|
1.10
|
%
|
3.64
|
%
|
4.53
|
%
|
Maximum
month-end balance during the year
|
|
$
|
30,615
|
|
$
|
32,560
|
|
$
|
31,547
|
|
Balance
as of year-end
|
|
$
|
20,086
|
|
$
|
25,881
|
|
$
|
25,987
|
|
84
Table of Contents
Long-term debt at December 31,
2008 and 2007 consisted of the following:
|
|
Amount
|
|
Weighted
Average Rate
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(In
thousands)
|
|
|
|
|
|
Fixed
rate FHLB advances maturing:
|
|
|
|
|
|
|
|
|
|
2008
|
|
$
|
|
|
$
|
15,000
|
|
|
%
|
4.06
|
%
|
2009
|
|
30,000
|
|
30,000
|
|
4.28
|
|
4.28
|
|
2010
|
|
10,000
|
|
|
|
3.45
|
|
|
|
2011
|
|
10,000
|
|
|
|
3.53
|
|
|
|
Total
long term debt
|
|
$
|
50,000
|
|
$
|
45,000
|
|
3.96
|
%
|
4.20
|
%
|
The Bank has a maximum
borrowing capacity with the FHLB of approximately $189.2 million, of which
advances of $53.4 million of overnight advances and $50.0 million of fixed rate
term advances and letters of credit of $13.1 million were outstanding at December 31,
2008. The letters of credit are used to
collateralize public deposits. Advances
and letters of credit from the FHLB are secured by qualifying assets of the
Bank.
The Company has entered
into a contract with a provider of information systems services for the supply
of such services through April 2011.
The Company is required to make minimum annual payments as follows,
whether or not it uses the services (in thousands):
Year Ended
|
|
Amount
|
|
2009
|
|
$
|
477
|
|
2010
|
|
501
|
|
2011
|
|
167
|
|
Total
minimum payments
|
|
$
|
1,145
|
|
Total expenditures during
2008, 2007 and 2006 in connection with the contract were $1.9 million, $1.9
million and $1.7 million, respectively.
11.
Junior Subordinated Debt
First Leesport Capital
Trust I, a Delaware statutory business trust, was formed on March 9, 2000
and is a wholly-owned subsidiary of the Company. The Trust issued $5 million of 10
7
/8% fixed rate capital trust pass-through securities
to investors. First Leesport Capital Trust I purchased $5 million of fixed rate
junior subordinated deferrable interest debentures from VIST Financial
Corp. The debentures are the sole asset
of the Trust. The terms of the junior
subordinated debentures are the same as the terms of the capital
securities. The obligations under the
debentures constitute a full and unconditional guarantee by VIST Financial
Corp. of the obligations of the Trust under the capital securities. The capital securities are redeemable by VIST
Financial Corp. on or after March 9, 2010, at stated premiums, or earlier
if the deduction of related interest for federal income taxes is prohibited,
classification as Tier 1 Capital is no longer allowed, or certain other
contingencies arise. The capital
securities must be redeemed upon final maturity of the subordinated debentures
on March 9, 2030. In October 2002,
the Company entered into an interest rate swap agreement with a notional amount
of $5 million that effectively converts the securities to a floating interest
rate of six month LIBOR plus 5.25% (8.36% at December 31, 2008). In June, 2003, the Company purchased a six
month LIBOR cap with a rate of 5.75% to create protection against rising
interest rates for the above mentioned $5 million interest rate swap. 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.
On September 26,
2002, the Company established Leesport Capital Trust II, a Delaware statutory
business trust, in which the Company owns all of the common equity. Leesport Capital Trust II issued $10 million
of mandatory redeemable capital securities carrying a floating interest rate of
three month LIBOR plus 3.45% (6.25%
85
Table
of Contents
at December 31,
2008). These debentures are the sole
assets of the Trust. The terms of the
junior subordinated debentures are the same as the terms of the capital
securities. The obligations under the
debentures constitute a full and unconditional guarantee by VIST Financial
Corp. of the obligations of the Trust under the capital securities. These
securities must be redeemed in September 2032, but may be redeemed on or
after November 7, 2007 or earlier in the event that the interest expense
becomes non-deductible for federal income tax purposes or if the treatment of
these securities is no longer qualified as Tier 1 capital for the Company. As of December 31, 2008, the Company has
not exercised the call option on these debentures. In September 2008, the Company entered
into an interest rate swap agreement that effectively converts the $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 (see note 17 of the consolidated
financial statements).
On June 26, 2003,
Madison established Madison Statutory Trust I, a Connecticut statutory business
trust. Pursuant to the purchase of
Madison on October 1, 2004, the Company assumed 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% (6.58% at December 31, 2008). These debentures are the sole assets of the
Trusts. The terms of the junior
subordinated debentures are the same as the terms of the capital securities. The obligations under the debentures constitute
a full and unconditional guarantee by VIST Financial Corp. of the obligations
of the Trust under the capital securities. 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 is no
longer qualified as Tier 1 capital for the Company. In September 2008, the Company entered
into an interest rate swap agreement that effectively converts the $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 (see note 17 of the consolidated
financial statements).
In January 2003, the
Financial Accounting Standards Board issued FASB Interpretation No. 46(R),
Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51
which was revised in December 2003.
This Interpretation provides guidance for the consolidation of variable
interest entities (VIEs). First Leesport
Capital Trust I, Leesport Capital Trust II and Madison Statutory Trust I (the Trusts)
each qualify as a variable interest entity under FIN 46(R). The Trusts issued mandatory redeemable
preferred securities (Trust Preferred Securities) to third-party investors and
loaned the proceeds to the Company. The
Trusts hold, as their sole assets, subordinated debentures issued by the
Company.
FIN 46 required the
Company to deconsolidate First Leesport Capital Trust I and Leesport Capital
Trust II from the consolidated financial statements as of March 31, 2004
and to deconsolidate Madison Statutory Trust I as of December 31,
2004. There has been no restatement of
prior periods. The impact of this deconsolidation was to increase junior
subordinated debentures by $20,150,000 and reduce the mandatory redeemable
capital debentures line item by $20,150,000 which had represented the trust
preferred securities of the trust. For
regulatory reporting purposes, the Federal Reserve Board has indicated that the
preferred securities will continue to qualify as Tier 1 Capital subject to
previously specified limitations, until further notice. If regulators make a
determination that Trust Preferred Securities can no longer be considered in
regulatory capital, the securities become callable and the Company may redeem
them. The adoption of FIN 46 did not
have an impact on the Companys results of operations or liquidity.
12.
Employee Benefits
The Company has an
Employee Stock Ownership Plan (ESOP) to provide its employees with future
retirement plan assistance. The ESOP
invests primarily in the Companys common stock. Contributions to the Plan are
at the discretion of the Board of Directors.
For the years ended December 31, 2008, 2007 and 2006, no amounts
were accrued to provide for contribution of shares to the Plan. During 2008, 2007 and 2006 respectively, no
shares, no shares and 11,873 shares were purchased on behalf of the ESOP. The ESOP plan was terminated as of June 30,
2006. The Company received a favorable
determination from the Internal Revenue Service that the ESOP is qualified
under Sections 401(a), 409(1) and 4975(e)(7) of the Internal Revenue
Code of 1986.
The Company has a 401(k) Salary
Deferral Plan. This plan covers all
eligible employees who elect to contribute to the Plan. An employee who has attained 18 years of age
and has been employed for at least 30 calendar days is eligible to participate
in the Plan effective with the next quarterly enrollment period. Employees become eligible for the Company
contribution to the Salary Deferral Plan at each future enrollment period upon
completion of one year of service. The
Company contributes 150% match of the first 2% of a participants pay
86
Table
of Contents
deferred into the Plan
plus 100% of next 1%, 50% of next 4% for a total available match of 6%. Contributions from the Company vest to the
employee over a five year schedule. The
annual expense included in salaries and employee benefits representing the
expense of the Companys contribution was $713,000, $715,000, and $708,000 for
the years ended December 31, 2008, 2007, and 2006, respectively.
The Company has entered
into deferred compensation agreements with certain directors and a salary
continuation plan for certain key employees.
At December 31, 2008 and 2007, the present value of the future
liability for these agreements was $1.6 million for both years. For the years ended December 31, 2008,
2007 and 2006, $159,000, $168,000 and $214,000, respectively, was charged to
expense in connection with these agreements.
To fund the benefits under these agreements, the Company is the owner
and beneficiary of life insurance policies on the lives of certain directors
and employees. These bank-owned life
insurance policies had an aggregate cash surrender value of $18.6 million and
$17.9 million at December 31, 2008 and 2007, respectively.
The Company has a
non-compensatory Employee Stock Purchase Plan (ESPP). Under the ESPP, employees of the Company who
elect to participate are eligible to purchase common stock at prices up to a 5
percent discount from the market value of the stock. The ESPP does not allow the discount in the
event that the purchase price would fall below the Companys most recently
reported book value per share. The ESPP
allows an employee to make contributions through payroll deductions to purchase
common shares up to 15 percent of annual compensation. The total number of shares of common stock
that may be issued pursuant to the ESPP is 250,886. As of December 31, 2008, a total of
52,990 shares have been issued under the ESPP.
13.
Stock Option Plans and
Shareholders Equity
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
Plan 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 Plan
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 December 31,
2008, a total of 148,072 shares have been issued under the ESIP. This ESIP plan 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 Plan 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 Plan 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 December 31, 2008, a total of 21,166 shares have been issued
under the IDSOP. This IDSOP plan 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 Equity Incentive Plan is equal to 12.5% of the
outstanding shares of the Companys common stock on the date of approval of the
Plan 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 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
87
Table
of Contents
retirement. As of December 31, 2008, no shares have
been issued under the EIP. This EIP will
expire on April 17, 2017.
A combined summary of
stock option transactions under the Plans is presented in the following table:
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
Weighted-
|
|
|
|
Weighted-
|
|
|
|
Weighted-
|
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
|
|
Exercise
|
|
|
|
Exercise
|
|
|
|
Exercise
|
|
|
|
Options
|
|
Price
|
|
Options
|
|
Price
|
|
Options
|
|
Price
|
|
Outstanding at the beginning of the year
|
|
443,562
|
|
$
|
20.15
|
|
438,502
|
|
$
|
20.20
|
|
380,720
|
|
$
|
18.29
|
|
Granted
|
|
292,229
|
|
13.07
|
|
24,978
|
|
19.11
|
|
162,356
|
|
22.88
|
|
Exercised
|
|
|
|
|
|
(5,249
|
)
|
13.42
|
|
(83,488
|
)
|
16.94
|
|
Forfeited
|
|
(11,589
|
)
|
19.56
|
|
(12,402
|
)
|
22.31
|
|
(17,400
|
)
|
19.27
|
|
Expired
|
|
(15,313
|
)
|
20.29
|
|
(2,267
|
)
|
21.96
|
|
(3,686
|
)
|
19.88
|
|
Outstanding at the end of the year
|
|
708,889
|
|
$
|
17.23
|
|
443,562
|
|
$
|
20.15
|
|
438,502
|
|
$
|
20.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31
|
|
374,892
|
|
$
|
19.87
|
|
323,384
|
|
$
|
19.49
|
|
236,676
|
|
$
|
18.37
|
|
Options available for
grant at December 31, 2008 were 406,921.
Other information
regarding options outstanding and exercisable as of December 31, 2008 is
as follows:
|
|
Options Outstanding
|
|
Options Exercisable
|
|
|
|
|
|
Average
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
|
|
Remaining
|
|
Average
|
|
|
|
Average
|
|
|
|
Options
|
|
Term
|
|
Exercise
|
|
Options
|
|
Exercise
|
|
Range of Exercise Price
|
|
Outstanding
|
|
in Years
|
|
Price
|
|
Outstanding
|
|
Price
|
|
$ 8.00
to $ 9.99
|
|
141,500
|
|
10.0
|
|
$
|
9.43
|
|
|
|
$
|
|
|
10.00 to 11.99
|
|
19,209
|
|
7.2
|
|
11.12
|
|
6,536
|
|
11.31
|
|
12.00 to 13.99
|
|
54,798
|
|
3.8
|
|
12.99
|
|
43,298
|
|
12.79
|
|
14.00 to 15.49
|
|
11,550
|
|
3.7
|
|
14.68
|
|
11,550
|
|
14.68
|
|
15.50 to 16.99
|
|
29,824
|
|
3.1
|
|
15.97
|
|
29,824
|
|
15.97
|
|
17.00 to 18.49
|
|
140,924
|
|
9.1
|
|
17.41
|
|
10,868
|
|
17.99
|
|
18.50 to 21.49
|
|
160,579
|
|
6.7
|
|
21.21
|
|
160,301
|
|
21.21
|
|
21.50 to 22.99
|
|
131,037
|
|
7.5
|
|
22.90
|
|
101,125
|
|
22.89
|
|
23.00 to 24.49
|
|
19,468
|
|
8.0
|
|
23.25
|
|
11,390
|
|
23.23
|
|
|
|
708,889
|
|
7.6
|
|
$
|
17.23
|
|
374,892
|
|
19.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from stock
option exercises from director and employee stock purchase plans totaled $0 in
2008, $222,000 in 2007 and $1.8 million in 2006.
As of December 31,
2008, 2007 and 2006, the aggregate intrinsic value of options outstanding was
$0, $350,000 and $1.1 million, respectively.
As of December 31, 2008, 2007 and 2006, the weighted average
remaining term of options outstanding was 7.6 years, 7.1 years and 8.2 years,
respectively. As of December 31,
2008, 2007 and 2006, the aggregate intrinsic value of options exercisable was
$0, $350,000 and $1.0 million, respectively.
As of December 31, 2008, 2007 and 2006, the weighted average
remaining term of options exercisable was 6.0 years, 6.4 years and 7.0 years,
respectively.
The aggregate intrinsic
value of a stock option represents the total pre-tax intrinsic value (the
amount by which the current market value of the underlying stock exceeds the
exercise price of the option) that would have been received by the option
holder had all option holders exercised their options on December 31,
2008. The aggregate intrinsic value of a
stock option will change based on fluctuations in the market value of the
Companys stock.
88
Table of Contents
Stock-Based
Compensation Expense
. As stated in Note 1 Significant Accounting
Policies, the Company adopted the provisions of SFAS No. 123R on January 1,
2006. SFAS No. 123R requires that
stock-based compensation to employees be recognized as compensation cost in the
consolidated statements of income based on their fair values on the measurement
date, which, for the Company, is the date of grant. Included in the results for the years ended December 31,
2008, 2007 and 2006 were compensation costs relating to the adoption of
Statement No. 123R of approximately $319,000, $255,000 and $245,000,
respectively, or $211,000 net of tax, $168,000 net of tax and $162,000 net of
tax, respectively. Cash flows from
financing activities for 2008 and 2007 included $0 and $12,000, respectively,
in cash inflows from excess tax benefits related to stock compensation. As of December 31, 2008 and 2007, there
was approximately $436,000 and $414,000, respectively, of total unrecognized
compensation cost related to non-vested stock options under the plans.
Valuation
of Stock-Based Compensation
. The fair
value of options granted during 2008, 2007 and 2006 was estimated at the date
of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions:
|
|
Years ended December 31,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Dividend
yield
|
|
6.09
|
%
|
3.75
|
%
|
3.06
|
%
|
Expected
life
|
|
7 years
|
|
7 years
|
|
7 years
|
|
Expected
volatility
|
|
21.52
|
%
|
16.91
|
%
|
17.43
|
%
|
Risk-free
interest rate
|
|
2.54
|
%
|
3.91
|
%
|
4.61
|
%
|
Weighted
average fair value of options granted
|
|
$
|
1.29
|
|
$
|
2.76
|
|
$
|
4.47
|
|
|
|
|
|
|
|
|
|
|
|
|
The expected volatility
is based on historic volatility. The
risk-free interest rates for periods within the contractual life of the awards
are based on the U.S. Treasury yield curve in effect at the time of the
grant. The expected life is based on
historical exercise experience. The
dividend yield assumption is based on the Companys history and expectation of
dividend payouts.
Stock
Repurchase Plan
. On July 17, 2007, the Company announced
that it has increased the number of shares remaining for repurchase under its
stock repurchase plan, originally effective January 1, 2003, and extended May 20,
2004, to 150,000 shares. During 2008,
the Company repurchased no shares of common stock. At December 31, 2008, the maximum number
of shares that may yet be purchased under the plan is 115,000.
As a result of the
issuance of the Series A Preferred Stock, prior to the earlier of the
third anniversary date of the issuance of the Series A Preferred Stock (December 19,
2011) or the date on which the Series A Preferred Stock have been redeemed
in whole or the Treasury has transferred all of the Series A Preferred
Stock to third parties which are not affiliates of the Treasury, the Company is
restriced against redeeming, purchasing or acquiring any shares of Common Stock
or other capital stock or other equity securities of any kind of the Company
without the consent of the Treasury.
14.
Income Taxes
The components of federal
and state income tax expense were as follows:
|
|
Years ended December 31,
|
|
|
|
2008
|
|
|
|
|
|
|
|
(As Restated)
|
|
2007
|
|
2006
|
|
|
|
(In thousands)
|
|
Current
federal income tax expense
|
|
$
|
(1,708
|
)
|
$
|
1,791
|
|
$
|
2,718
|
|
Current
state income tax expense
|
|
195
|
|
|
|
|
|
Deferred
federal and state income tax expense (benefit)
|
|
(345
|
)
|
(45
|
)
|
121
|
|
|
|
$
|
(1,858
|
)
|
$
|
1,746
|
|
$
|
2,839
|
|
89
Table of Contents
Reconciliation of the
statutory federal income tax expense computed at 34% to the income tax expense
included in the consolidated statements of income is as follows:
|
|
Years ended December 31,
|
|
|
|
2008
|
|
|
|
|
|
|
|
(As Restated)
|
|
2007
|
|
2006
|
|
|
|
(In thousands)
|
|
Federal
income tax at statutory rate
|
|
$
|
(440
|
)
|
$
|
3,133
|
|
$
|
4,077
|
|
State
tax expense
|
|
195
|
|
|
|
|
|
Tax
exempt interest
|
|
(958
|
)
|
(729
|
)
|
(584
|
)
|
Interest
disallowance
|
|
112
|
|
109
|
|
78
|
|
Bank
owned life insurance
|
|
(236
|
)
|
(227
|
)
|
(165
|
)
|
Tax
credits
|
|
(600
|
)
|
(600
|
)
|
(600
|
)
|
Incentive
stock option expense
|
|
101
|
|
87
|
|
54
|
|
Other
|
|
(32
|
)
|
(27
|
)
|
(21
|
)
|
|
|
$
|
(1,858
|
)
|
$
|
1,746
|
|
$
|
2,839
|
|
Deferred income taxes
reflect temporary differences in the recognition of revenue and expenses for
tax reporting and financial statement purposes, principally because certain
items, such as, the allowance for loan losses and loan fees are recognized in
different periods for financial reporting and tax return purposes. A valuation allowance has not been
established for deferred tax assets.
Realization of the deferred tax assets is dependent on generating
sufficient taxable income. Although
realization is not assured, management believes it is more likely than not that
all of the deferred tax asset will be realized.
Deferred tax assets are recorded in other assets.
Net deferred tax assets
consisted of the following components:
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
(In thousands)
|
|
Deferred
tax assets:
|
|
|
|
|
|
Allowance
for loan losses
|
|
$
|
2,762
|
|
$
|
2,470
|
|
Deferred
compensation
|
|
550
|
|
530
|
|
Net
operating loss carryovers
|
|
508
|
|
1,247
|
|
Net
unrealized losses on available for sale securities
|
|
4,036
|
|
575
|
|
Non-qualified
stock option expense
|
|
8
|
|
45
|
|
Deferred
issuance costs
|
|
199
|
|
210
|
|
Other
|
|
202
|
|
40
|
|
|
|
|
|
|
|
Total
deferred tax assets
|
|
8,265
|
|
5,117
|
|
|
|
|
|
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
Premises
and equipment
|
|
122
|
|
(407
|
)
|
Goodwill
|
|
(776
|
)
|
(807
|
)
|
Core
deposit intangible
|
|
(248
|
)
|
(337
|
)
|
Mortgage
servicing rights
|
|
(100
|
)
|
(167
|
)
|
Loans
receivable
|
|
|
|
(62
|
)
|
Prepaid
expense and deferred loan costs
|
|
(556
|
)
|
(436
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
Total
deferred tax liabilities
|
|
(1,558
|
)
|
(2,216
|
)
|
|
|
|
|
|
|
Net
deferred tax assets
|
|
$
|
6,707
|
|
$
|
2,901
|
|
90
Table of Contents
As of December 31,
2008, the Company has utilized all of the federal net operating loss carryovers
from the acquisition of Madison. The
utilization of these losses is subject to annual limitation under Section 382
of the Internal Revenue Code. The
Company has approximately $5.1 million of state net operating loss carryovers
which will expire in 2024.
In July 2006, the
Financial Accounting Standards Board (FASB) issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprises financial statements
in accordance with FASB Statement 109, Accounting for Income Taxes. FIN 48 is effective for fiscal years
beginning after December 15, 2006.
The Company adopted FIN 48 as of January 1, 2007. The Company has evaluated its tax positions
as of December 31, 2008. A tax
position is recognized as a benefit only if it is more likely than not that
the tax position would be sustained in a tax examination, with a tax
examination being presumed to occur. The
amount recognized is the largest amount of tax benefit that has a likelihood of
being realized on examination of more than 50 percent. For tax positions not meeting the more likely
than not test, no tax benefit is recorded.
Under the more likely than not threshold guidelines, the Company
believes no significant uncertain tax positions exist, either individually or
in the aggregate, that would give rise to the non-recognition of an existing
tax benefit. As of December 31,
2008, the Company had no material unrecognized tax benefits or accrued interest
and penalties. The Companys policy is
to account for interest as a component of interest expense and penalties as a
component of other expense. The Company
and its subsidiaries are subject to U.S. federal income tax as well as income
tax of the Commonwealth of Pennsylvania.
The Company is no longer subject to examination by U.S. Federal taxing
authorities for the years before January 1, 2005 and for all state income
taxes through December 31, 2004.
15.
Transactions with
Executive Officers and Directors
The Bank has had banking
transactions in the ordinary course of business with its executive officers and
directors and their related interests on the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with others. At December 31,
2008 and 2007, these persons were indebted to the Bank for loans totaling $10.6
million and $7.9 million, respectively.
During 2008, $0.7 million of new loans were made and repayments totaled
$2.0 million.
16.
Regulatory Matters and
Capital Adequacy
The Company and the Bank
are subject to various regulatory capital requirements administered by the
federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have
a direct material effect on their financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company and the Bank
must meet specific capital guidelines that involve quantitative measures of its
assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. The
capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk-weightings and other factors.
Quantitative measures
established by regulation to ensure capital adequacy require the Company and
the Bank to maintain minimum amounts and ratios of total and Tier 1 capital (as
defined in the regulations) to risk-weighted assets, and of Tier 1 capital to average
assets. Management believes, as of December 31,
2008, that the Company and the Bank meet all minimum capital adequacy
requirements to which they are subject.
As of December 31,
2008, the most recent notification from the Banks primary regulator categorized
the Bank as well capitalized under the regulatory framework for prompt
corrective action. There are no
conditions or events since that notification that management believes have
changed its category.
91
Table of Contents
The Companys and the
Banks actual capital amounts and ratios are presented below:
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
|
|
|
|
|
|
|
|
|
|
To
Be Well
|
|
|
|
|
|
|
|
Minimum
|
|
Capitalized
Under
|
|
|
|
|
|
|
|
For
Capital
|
|
Prompt
Corrective
|
|
|
|
Actual
|
|
Adequacy
Purposes
|
|
Action
Provisions
|
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
|
|
(Dollar
amounts in thousands)
|
|
As of December 31, 2008 (As
Restated):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to risk-weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VIST Financial Corp.,
|
|
$
|
112,846
|
|
12.77
|
%
|
$
|
>
70,716
|
|
>
8.00
|
%
|
N/A
|
|
N/A
|
|
VIST Bank
|
|
96,873
|
|
11.11
|
|
>
69,776
|
|
>
8.00
|
|
$
|
>
87,220
|
|
>
10.00
|
%
|
Tier 1 capital (to risk-weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VIST Financial Corp.,
|
|
104,722
|
|
11.85
|
|
>
35,358
|
|
>
4.00
|
|
N/A
|
|
N/A
|
|
VIST Bank
|
|
88,749
|
|
10.18
|
|
>
34,888
|
|
>
4.00
|
|
>
52,332
|
|
>
6.00
|
|
Tier 1 capital (to average assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VIST Financial Corp.,
|
|
104,722
|
|
9.07
|
|
>
46,182
|
|
>
4.00
|
|
N/A
|
|
N/A
|
|
VIST Bank
|
|
88,749
|
|
7.73
|
|
>
45,933
|
|
>
4.00
|
|
>
57,416
|
|
>
5.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to risk-weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VIST Financial Corp.,
|
|
$
|
91,520
|
|
11.12
|
%
|
$
|
>
65,844
|
|
>
8.00
|
%
|
N/A
|
|
N/A
|
|
VIST Bank
|
|
85,258
|
|
10.51
|
|
>
64,918
|
|
>
8.00
|
|
$
|
>
81,148
|
|
>
10.00
|
%
|
Tier 1 capital (to risk-weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VIST Financial Corp.,
|
|
84,256
|
|
10.24
|
|
>
32,922
|
|
>
4.00
|
|
N/A
|
|
N/A
|
|
VIST Bank
|
|
77,994
|
|
9.61
|
|
>
32,459
|
|
>
4.00
|
|
>
48,689
|
|
>
6.00
|
|
Tier 1 capital (to average assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VIST Financial Corp.,
|
|
84,256
|
|
7.99
|
|
>
42,157
|
|
>
4.00
|
|
N/A
|
|
N/A
|
|
VIST Bank
|
|
77,994
|
|
7.47
|
|
>
41,763
|
|
>
4.00
|
|
>
52,204
|
|
>
5.00
|
|
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 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. Under ARRA, the Series A
Preferred Stock may be redeemed at any time following consultation by the
Companys primary bank regulator and Treasury, not withstanding the terms of
the original transaction documents.
Under FAQs 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.
Prior to the earlier of
the third anniversary date of the issuance of the Series A Preferred Stock
(December 19, 2011) or the date on which the Series A Preferred Stock
have been redeemed in whole or the Treasury has transferred all of the Series A
Preferred Stock to third parties which are not affiliates of the Treasury, the
Company can not increase its common stock dividend from the last quarterly cash
dividend per share ($0.10) declared on the common stock prior to October 14,
2008 without the consent of the Treasury,
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. If the Company receives aggregate
gross cash proceeds of not less than $25,000,000 from qualified equity
offerings on or prior to December 31, 2009, the number of shares of common
stock issuable pursuant to exercise of the Warrant will be reduced by one half
of the original number of shares underlying the Warrant. In addition, in the event that the Company
redeems the Series A Preferred Stock, the Company can repurchase the
warrant at fair value as defined in the investment agreement with Treasury.
92
Table
of Contents
Federal and state banking
regulations place certain restrictions on dividends paid and loans or advances
made by the Bank to the Company. At December 31,
2008, the Bank had approximately $10.0 million available for payment of
dividends to the Company. Loans or
advances are limited to 10 percent of the Banks capital stock and surplus on a
secured basis. At December 31,
2008, the Bank had a $1.0 million loan outstanding to VIST Insurance. At December 31, 2007, the Bank had no
secured loans outstanding to the Company or any of its subsidiaries.
As of January 20,
2009, the Company had declared a $0.10 per share cash dividend for common
shareholders of record on February 2, 2009, payable February 13,
2009. As of December 19, 2007, the
Company had declared a $.20 per share cash dividend for common shareholders of
record on January 2, 2008, payable January 15, 2008.
For 2008, dividends on
the Series A Preferred Stock were immaterial and were not included in
income available for common shareholders or basic and diluted earnings per
common share.
In addition, dividends
paid by the Bank to the Company would be prohibited if the effect thereof would
cause the Banks capital to be reduced below applicable minimum capital
requirements.
17.
Financial Instruments
with Off-Balance Sheet Risk
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 sheets.
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
investments.
A summary of the Banks
financial instrument commitments is as follows:
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
(In
thousands)
|
|
Commitments
to extend credit:
|
|
|
|
|
|
Loan
origination commitments
|
|
$
|
59,093
|
|
$
|
79,886
|
|
Unused
home equity lines of credit
|
|
48,919
|
|
52,030
|
|
Unused
business lines of credit
|
|
138,181
|
|
167,136
|
|
Total
commitments to extend credit
|
|
$
|
246,193
|
|
$
|
299,052
|
|
|
|
|
|
|
|
Standby
letters of credit
|
|
$
|
14,479
|
|
$
|
18,135
|
|
Commitments to extend
credit are agreements to lend to a customer as long as there is no violation of
any condition established in the contract.
Since many of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent future cash
requirements. Commitments generally have
fixed expiration dates or other termination clauses and may require payment of
a fee. The Bank evaluates each customers
credit worthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary by the Bank upon
extension of credit, is based on managements credit evaluation. Collateral
held varies but may include personal or commercial real estate, accounts
receivable, inventory and equipment.
Standby letters of credit
written are conditional commitments issued by the Bank to guarantee the
performance of a customer to a third party.
The majority of these standby letters of credit expire within the next
twelve months. The credit risk involved
in issuing letters of credit is essentially the same as that involved in
extending other loan commitments. The
Bank requires collateral supporting these letters of credit as deemed
necessary. Management believes that the
proceeds obtained through a liquidation of such collateral would be
93
Table of Contents
sufficient to cover the
maximum potential amount of future payments required under the corresponding
guarantees. The current amount of the
liability as of December 31, 2008 and 2007 for guarantees under standby
letters of credit issued is not material.
The Company has elected
to record its junior subordinated debt at fair value with changes in fair value
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 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. For the period ended December 31,
2008 the estimated credit spreads the Company used in determining the fair
value of its junior subordinated debt were incorrect. Due to the escalation of the credit crisis in
the fourth quarter of 2008, credit spreads widened as the underlying credit
quality of the institutions issuing these debentures deteriorated. Short-term interest rate indexes (LIBOR)
declined several hundred basis points in the fourth quarter of 2008. The Company has adjusted these credit spreads
to reflect a more appropriate fair value in the restated financial statements.
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 (8.36% at December 31, 2008), and the Company
receives a fixed rate equal to the interest that the Company is obligated to
pay on the related trust preferred securities (10.875%).
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. The first interest rate swap
agreement effectively converts the $10 million of adjustable-rate capital
securities to a fixed interest rate of 7.25%. Interest began accruing on this swap
in February 2009. The second interest rate swap agreement effectively
converts the $5 million of adjustable-rate capital securities to a fixed
interest rate of 6.90%. Interest began accruing on this swap in March 2009. Entering into interest rate derivatives
potentially exposes the Company to the risk of counterparties failure to
fulfill their legal obligations including, but not limited to, potential
amounts due or payable under each derivative contract. Notional principal amounts are often used to express
the volume of these transactions, but the amounts potentially subject to credit
risk 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. 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.
The estimated fair values
of the interest rate swap agreements represent the amount the Company would
have expected to receive to terminate such contract. At December 31, 2008 and 2007, the estimated
fair value of the interest rate swap agreements was $(1,325,000) and $82,000,
respectively, and was offset by an increase in the fair value of the related
trust preferred security. The swap
agreements expose the Company to market and credit risk if the counterparty
fails to perform. Credit risk is equal
to the extent of a fair value gain on the swaps. The Company manages this risk by entering
into these transactions with high quality counterparties.
During the years ended December 31,
2008, 2007 and 2006, the Company recognized amounts received or receivable
under the agreement of $100,000, $4,000 and $27,000, which were recorded as a
reduction of interest expense on the trust preferred securities.
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 initial premium related to this interest
rate cap was $102,000. At December 31,
2008 and 2007, the carrying and market values were approximately $0 and $3,000,
respectively.
94
Table of Contents
18.
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.
In September 2006,
the Financial Accounting Standards Board (FASB) issued Statement No. 157,
Fair Value Measurements (SFAS 157), which defines fair value, establishes a
framework for measuring fair value under GAAP, and expands disclosures about
fair value measurements. SFAS 157
applies to other accounting pronouncements that require or permit fair value
measurements. The Company adopted SFAS
157 effective for its fiscal year beginning January 1, 2007.
The following methods and
assumptions were used to estimate the fair values of the Companys financial
instruments at December 31, 2008 and 2007:
SFAS No. 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.
Fair Value Measurements
(SFAS No. 159)
The Company elected to
early adopt SFAS No. 159 as of January 1, 2007. Early adoption was elected to accommodate
balance sheet strategies to facilitate the Companys regulatory capital,
liquidity management and interest rate risk management. The Company adopted the fair value option for
its junior subordinated debt that had been carried at approximately $20.2
million at December 31, 2006.
Effective January 1, 2007, junior subordinated debt was accounted
for at their then fair value. This resulted in a one-time cumulative after-tax
charge of $409,000 ($619,000 pre-tax) to opening retained earnings as of January 1,
2007. As a result of the change in fair
value of the junior subordinated debt, included in other non-interest income
for the first nine months of 2007 is a pre-tax loss of approximately $67,000.
The following table
presents information about the eligible financial liabilities for which the
Company elected the fair value measurement option and for which a transition
adjustment was recorded to retained earnings as of January 1, 2007:
95
Table of Contents
|
|
January 1,
2007
(Carrying
value prior
to
adoption)
|
|
Cumulative-
effect
adjustment to
January 1, 2007
retained
earnings-loss
|
|
January 1,
2007 fair
value
(Carrying
value after
adoption)
|
|
|
|
(In
thousands)
|
|
Liabilities:
|
|
|
|
|
|
|
|
Junior
subordinated debt
|
|
$
|
20,150
|
|
$
|
185
|
|
$
|
20,335
|
|
Total
Liabilities
|
|
$
|
20,150
|
|
$
|
185
|
|
$
|
20,335
|
|
|
|
|
|
|
|
|
|
Pre-tax
cumulative effect of adoption of SFAS No. 159
|
|
|
|
$
|
185
|
|
|
|
Unamortized
deferred issuance costs
|
|
|
|
$
|
434
|
|
|
|
Income
tax benefit
|
|
|
|
(210
|
)
|
|
|
Cumulative
effect of adoption of SFAS No. 159
|
|
|
|
$
|
409
|
|
|
|
SFAS No. 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 No. 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 No. 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.
96
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 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
(as restated):
|
|
|
|
|
|
|
|
|
|
Junior
subordinated debt
|
|
$
|
|
|
$
|
|
|
$
|
18,260
|
|
18,260
|
|
Interest
rate swaps
|
|
|
|
|
|
1,325
|
|
1,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007
|
|
|
|
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
|
|
$
|
184,806
|
|
$
|
|
|
$
|
186,481
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Junior
subordinated debt
|
|
$
|
|
|
$
|
|
|
$
|
20,232
|
|
20,232
|
|
Interest
rate swaps
|
|
|
|
|
|
(82
|
)
|
(82
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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-K.
97
Table of Contents
The following table
presents the assets measured on a nonrecurring basis reported on the
consolidated statements of financial condition at their fair value by level
within the fair value hierarchy.
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007
|
|
|
|
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
|
|
$
|
|
|
$
|
3,165
|
|
$
|
|
|
$
|
3,165
|
|
Impaired
loans
|
|
|
|
|
|
837
|
|
837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans totaled
$5.3 million at December 31, 2008, compared to $837,000 at December 31,
2007. The $4.4 million increase in
non-performing loans from December 31, 2007 to December 31, 2008, was
due primarily to three commercial real estate loans totaling approximately $4.6
million.
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 twelve months ended December 31, 2008
is a gain of approximately $566,000.
Certain assets and
liabilities are measured at fair value on a nonrecurring basis, that is, are
not measured at fair value on an ongoing basis but are subject to fair value
adjustments in certain circumstances (for example, when there is evidence of
impairment). Assets and liabilities
measured at fair value on a non-recurring basis were not significant at December 31,
2008.
Net securities losses for
the year ended December 31, 2008, were primarily due to the pre-tax losses
of approximately $7.5 million on the sale of perpetual preferred stock
associated with the federal takeover of Fannie Mae and Freddie Mac, government
sponsored enterprises (GSEs), placed into conservatorship on September 7,
2008, by the Federal Housing Finance Agency and the U.S. Treasury and other
corporate equity securities.
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
98
Table
of Contents
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 stock is carried at cost.
Loans Held for Sale:
The fair value of loans
held for sale is determined, when possible, using quoted secondary-market
prices. If no such quoted price exists,
the fair value of a loan is determined based on expected proceeds based on
sales contracts and commitments.
Impaired Loans:
Impaired loans are those
that are accounted for under FASB Statement No. 114, Accounting by
Creditors for Impairment of a Loan (SFAS 114), in which the Company has measured
impairment generally based on the fair value of the loans collateral. Impaired loans are evaluated and valued at
the time the loan is identified as impaired. Fair value is measured based on
the value of the collateral securing these loans and is classified at a Level 3
in the fair value hierarchy. Collateral
may be real estate and/or business assets including equipment, inventory and/or
accounts receivable and is determined based on appraisals by qualified licensed
appraisers hired by the Company.
Appraised and reported values may be discounted based on managements
historical knowledge, changes in market conditions from the time of valuation,
and/or managements expertise and knowledge of the client and clients
business. Impaired loans are reviewed
and evaluated on a monthly basis for additional impairment and adjusted
accordingly, based on the same factors identified above.
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.
99
Table of Contents
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 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.
The estimated fair values
of the Companys financial instruments as of December 31, 2008 and 2007
were as follows:
100
Table
of Contents
|
|
2008
|
|
2008
|
|
2007
|
|
2007
|
|
|
|
Carrying
|
|
Estimated
|
|
Carrying
|
|
Estimated
|
|
|
|
Amount
|
|
Fair Value
|
|
Amount
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents and federal funds sold
|
|
$
|
19,284
|
|
$
|
19,284
|
|
$
|
25,789
|
|
$
|
25,789
|
|
Mortgage
loans held for sale
|
|
2,283
|
|
2,283
|
|
3,165
|
|
3,165
|
|
Securities
available for sale
|
|
226,665
|
|
226,665
|
|
186,481
|
|
186,481
|
|
Securities
held to maturity
|
|
3,060
|
|
1,926
|
|
3,078
|
|
3,100
|
|
Federal
Home Loan Bank stock
|
|
5,715
|
|
5,715
|
|
5,562
|
|
5,562
|
|
Loans,
net
|
|
878,181
|
|
897,930
|
|
813,734
|
|
830,357
|
|
Mortgage
servicing rights
|
|
295
|
|
295
|
|
491
|
|
491
|
|
Accrued
interest receivable
|
|
4,734
|
|
4,734
|
|
4,845
|
|
4,845
|
|
Interest
rate cap
|
|
|
|
|
|
3
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
850,600
|
|
858,744
|
|
712,645
|
|
713,206
|
|
Securities
sold under agreements to repurchase
|
|
120,086
|
|
121,572
|
|
110,881
|
|
110,881
|
|
Federal
funds purchased
|
|
53,424
|
|
53,424
|
|
118,210
|
|
118,210
|
|
Long-term
debt
|
|
50,000
|
|
50,975
|
|
45,000
|
|
45,157
|
|
Junior
subordinated debt (as restated)
|
|
18,260
|
|
18,260
|
|
20,232
|
|
20,232
|
|
Accrued
interest payable
|
|
3,413
|
|
3,413
|
|
3,197
|
|
3,197
|
|
Interest
rate swap (as restated)
|
|
1,325
|
|
1,325
|
|
(82
|
)
|
(82
|
)
|
|
|
|
|
|
|
|
|
|
|
Off-balance Sheet Financial Instruments:
|
|
|
|
|
|
|
|
|
|
Commitments
to extend credit
|
|
|
|
|
|
|
|
|
|
Standby
letters of credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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-K.
101
Table
of Contents
19. Segment and Related 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 VIST Insurance operation provides coverage for commercial,
individual, surety bond, and group and personal benefit plans. The VIST Capital operation provides services
for individual financial planning, retirement and estate planning, investments,
corporate and small business pension and retirement planning.
Segment information for
2008, 2007 and 2006 is as follows (in thousands):
|
|
Banking and
|
|
|
|
Brokerage and
|
|
|
|
|
|
|
|
Financial
|
|
Mortgage
|
|
Investment
|
|
|
|
|
|
|
|
Services
|
|
Banking
|
|
Services
|
|
Insurance
|
|
Total
|
|
2008 (As Restated)
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income and other income from external customers
|
|
$
|
31,975
|
|
$
|
2,956
|
|
$
|
892
|
|
$
|
11,357
|
|
$
|
47,180
|
|
Income
(loss) before income taxes
|
|
(4,335
|
)
|
1,332
|
|
(150
|
)
|
1,860
|
|
(1,293
|
)
|
Total
assets
|
|
1,131,797
|
|
75,370
|
|
1,247
|
|
17,656
|
|
1,226,070
|
|
Purchases
of premises and equipment
|
|
1,142
|
|
1
|
|
1
|
|
36
|
|
1,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income and other income from external customers
|
|
$
|
35,924
|
|
$
|
2,806
|
|
$
|
987
|
|
$
|
11,371
|
|
$
|
51,088
|
|
Income
(loss) before income taxes
|
|
6,413
|
|
645
|
|
(23
|
)
|
2,181
|
|
9,216
|
|
Total
assets
|
|
1,045,800
|
|
60,648
|
|
1,198
|
|
17,305
|
|
1,124,951
|
|
Purchases
of premises and equipment
|
|
1,200
|
|
39
|
|
16
|
|
237
|
|
1,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income and other income from external customers
|
|
$
|
36,675
|
|
$
|
4,458
|
|
$
|
788
|
|
$
|
11,393
|
|
$
|
53,314
|
|
Income
(loss) before income taxes
|
|
8,822
|
|
1,001
|
|
(158
|
)
|
2,327
|
|
11,992
|
|
Total
assets
|
|
967,040
|
|
53,758
|
|
1,226
|
|
19,608
|
|
1,041,632
|
|
Purchases
of premises and equipment
|
|
758
|
|
10
|
|
6
|
|
60
|
|
834
|
|
Income (loss) before
income taxes, as presented above, does not reflect referral and management fees
of approximately $588,000, $1.6 million and $213,000 that the mortgage banking
operation, insurance operation and the brokerage and investment operation,
respectively, paid to the Company during 2008.
For 2007, referral and management fees of approximately $694,000, $1.4
million and $149,000 were paid by the mortgage banking operation, insurance
operation and the brokerage and investment operation, respectively. For 2006, referral and management fees of
approximately $891,000, $1.2 million and $140,000 were paid by the mortgage
banking operation, insurance operation and the brokerage and investment
operation, respectively.
20. Legal Proceedings
The Company is party to
legal actions that are routine and incidental to its business. In managements opinion, the outcome of these
matters, individually or in the aggregate, will not have a material effect on
the financial statements of the Company.
102
Table of Contents
21. VIST Financial Corp. (Parent Company
Only) Financial Information
BALANCE
SHEET
|
|
December 31,
|
|
|
|
2008
(As Restated)
|
|
2007
|
|
|
|
(In thousands)
|
|
ASSETS
|
|
|
|
|
|
Cash
and short-term investments
|
|
$
|
15,715
|
|
$
|
331
|
|
Investment
in bank subsidiary
|
|
109,774
|
|
106,331
|
|
Investment
in non-bank subsidiary
|
|
13,717
|
|
14,634
|
|
Securities
available for sale
|
|
2,079
|
|
3,881
|
|
Premises
and equipment and other assets
|
|
2,763
|
|
4,072
|
|
Total
assets
|
|
$
|
144,048
|
|
$
|
129,249
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
Other
liabilities
|
|
2,159
|
|
2,425
|
|
Junior
subordinated debt, at fair value as of December 31, 2008
|
|
18,260
|
|
20,232
|
|
Shareholders
equity
|
|
123,629
|
|
106,592
|
|
Total
liabilities and shareholders equity
|
|
$
|
144,048
|
|
$
|
129,249
|
|
STATEMENTS
OF INCOME
|
|
Years Ended December 31,
|
|
|
|
2008
(As Restated)
|
|
2007
|
|
2006
|
|
|
|
(In thousands)
|
|
Dividends
from subsidiaries
|
|
$
|
3,209
|
|
$
|
4,372
|
|
$
|
3,912
|
|
Other
income
|
|
9,591
|
|
9,377
|
|
8,771
|
|
Interest
expense on junior subordinated debt
|
|
(1,437
|
)
|
(1,898
|
)
|
(1,852
|
)
|
Other
expense
|
|
(8,617
|
)
|
(7,568
|
)
|
(6,648
|
)
|
Income
before equity in undistributed net income (loss) of subsidiaries and income
taxes
|
|
2,746
|
|
4,283
|
|
4,183
|
|
Income
tax expense (benefit)
|
|
2
|
|
50
|
|
138
|
|
Net
equity in undistributed net income (loss) of subsidiaries
|
|
(2,179
|
)
|
3,237
|
|
5,108
|
|
Net
income
|
|
$
|
565
|
|
$
|
7,470
|
|
$
|
9,153
|
|
103
Table
of Contents
STATEMENTS
OF CASH FLOWS
|
|
Years Ended December 31,
|
|
|
|
2008
(As Restated)
|
|
2007
|
|
2006
|
|
|
|
(In thousands)
|
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
565
|
|
$
|
7,470
|
|
$
|
9,153
|
|
Adjustments
to reconcile net income to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
322
|
|
283
|
|
273
|
|
Equity
in undistributed loss (income) of subsidiaries
|
|
2,179
|
|
(3,237
|
)
|
(5,108
|
)
|
Directors
stock compensation
|
|
193
|
|
222
|
|
171
|
|
Loss
(Gain) on sale of available for sale securities
|
|
236
|
|
(55
|
)
|
(262
|
)
|
Increase
(decrease) other liabilities
|
|
(21
|
)
|
313
|
|
825
|
|
Decrease
(increase) in other assets
|
|
1,777
|
|
1,215
|
|
286
|
|
Other,
net
|
|
(9,664
|
)
|
4,388
|
|
5,985
|
|
Net Cash (Used In) Provided by Operating Activities
|
|
(4,413
|
)
|
10,599
|
|
11,323
|
|
|
|
|
|
|
|
|
|
Cash Flow From Investing Activities
|
|
|
|
|
|
|
|
Purchase
of available for sale investment securities
|
|
(118
|
)
|
(350
|
)
|
(1,267
|
)
|
Sales
and principal repayments, maturities and calls of available for sale
securities
|
|
1,322
|
|
882
|
|
2,680
|
|
Purchase
of premises and equipment
|
|
(428
|
)
|
(337
|
)
|
(391
|
)
|
Investment
in bank subsidiary
|
|
(3,443
|
)
|
(7,855
|
)
|
(7,072
|
)
|
Investment
in non-bank subsidiary
|
|
917
|
|
(978
|
)
|
(139
|
)
|
Net Cash Used In Investing Activities
|
|
(1,750
|
)
|
(8,638
|
)
|
(6,189
|
)
|
|
|
|
|
|
|
|
|
Cash Flow From Financing Activities
|
|
|
|
|
|
|
|
Proceeds
from the exercise of stock options and stock purchase plans
|
|
141
|
|
222
|
|
1,810
|
|
Issuance
of preferred stock
|
|
25,000
|
|
|
|
|
|
Purchase
of treasury stock and warrant
|
|
|
|
(660
|
)
|
(1,118
|
)
|
Reissuance
of treasury stock
|
|
384
|
|
320
|
|
281
|
|
Cash
dividends paid
|
|
(3,978
|
)
|
(4,264
|
)
|
(3,800
|
)
|
Net Cash Provided By (Used In) Financing Activities
|
|
21,547
|
|
(4,382
|
)
|
(2,827
|
)
|
Increase
(decrease) in cash and cash equivalents
|
|
15,384
|
|
(2,421
|
)
|
2,307
|
|
Cash:
|
|
|
|
|
|
|
|
Beginning
|
|
331
|
|
2,752
|
|
445
|
|
Ending
|
|
$
|
15,715
|
|
$
|
331
|
|
$
|
2,752
|
|
104
Table
of Contents
21.
Quarterly Data (Unaudited)
|
|
Year Ended December 31, 2008
|
|
|
|
Fourth
|
|
Third
|
|
|
|
|
|
|
|
Quarter
(As Restated)
|
|
Quarter
(As Restated)
|
|
Second
Quarter
|
|
First
Quarter
|
|
|
|
(In thousands, except per share data)
|
|
Interest
income
|
|
$
|
16,094
|
|
$
|
16,705
|
|
$
|
16,315
|
|
$
|
16,724
|
|
Interest
expense
|
|
7,496
|
|
7,671
|
|
7,288
|
|
8,182
|
|
Net
interest income
|
|
8,598
|
|
9,034
|
|
9,027
|
|
8,542
|
|
Provision
for loan losses
|
|
2,250
|
|
525
|
|
1,650
|
|
410
|
|
Net
interest income after provision for loan losses
|
|
6,348
|
|
8,509
|
|
7,377
|
|
8,132
|
|
Other
income
|
|
4,919
|
|
5,031
|
|
4,707
|
|
4,552
|
|
Net
realized (losses) gains on sales of securities and impairment charges
|
|
(436
|
)
|
(6,996
|
)
|
61
|
|
141
|
|
Other
expense
|
|
11,469
|
|
10,569
|
|
10,513
|
|
11,087
|
|
Income
before income taxes
|
|
(638
|
)
|
(4,025
|
)
|
1,632
|
|
1,738
|
|
Income
taxes (benefit)
|
|
(2,767
|
)
|
566
|
|
164
|
|
179
|
|
Net
income
|
|
$
|
2,129
|
|
$
|
(4,591
|
)
|
$
|
1,468
|
|
$
|
1,559
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share:
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$
|
0.38
|
|
$
|
(0.81
|
)
|
$
|
0.26
|
|
$
|
0.27
|
|
Diluted
earnings per share
|
|
$
|
0.38
|
|
$
|
(0.81
|
)
|
$
|
0.26
|
|
$
|
0.27
|
|
|
|
Year Ended December 31, 2007
|
|
|
|
Fourth
|
|
Third
|
|
Second
|
|
First
|
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
|
(In thousands, except per share data)
|
|
Interest
income
|
|
$
|
17,271
|
|
$
|
17,305
|
|
$
|
17,049
|
|
$
|
16,451
|
|
Interest
expense
|
|
8,821
|
|
8,903
|
|
8,655
|
|
8,456
|
|
Net
interest income
|
|
8,450
|
|
8,402
|
|
8,394
|
|
7,995
|
|
Provision
for loan losses
|
|
400
|
|
300
|
|
148
|
|
150
|
|
Net
interest income after provision for loan losses
|
|
8,050
|
|
8,102
|
|
8,246
|
|
7,845
|
|
Other
income
|
|
4,814
|
|
5,168
|
|
5,216
|
|
4,973
|
|
Net
realized gains on sale of securities
|
|
84
|
|
85
|
|
|
|
(2,493
|
)
|
Other
expense
|
|
10,436
|
|
10,034
|
|
10,206
|
|
10,198
|
|
Income
before income taxes
|
|
2,512
|
|
3,321
|
|
3,256
|
|
127
|
|
Income
taxes
|
|
480
|
|
786
|
|
754
|
|
(274
|
)
|
Net
income
|
|
$
|
2,032
|
|
$
|
2,535
|
|
$
|
2,502
|
|
$
|
401
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share:
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$
|
0.36
|
|
$
|
0.45
|
|
$
|
0.44
|
|
$
|
0.07
|
|
Diluted
earnings per share
|
|
$
|
0.35
|
|
$
|
0.45
|
|
$
|
0.44
|
|
$
|
0.07
|
|
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-K.
105
Table
of Contents
Item 9.
Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure
None.
Item 9A.
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 December 31,
2008. 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.
These accounting errors 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 December 31,
2008. 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 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 2008 that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.
106
Table of Contents
MANAGEMENTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible
for establishing and maintaining an adequate system of internal control over
financial reporting. An adequate system
of internal control over financial reporting encompasses the processes and
procedures that have been established by management to:
·
Maintain records that, in reasonable detail,
accurately reflect the companys transactions
·
Provide reasonable assurance that the transactions are
recorded as necessary to permit preparation of the financial statement and
footnote disclosures in accordance with accounting principles generally
accepted in the United States, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and
the directors of the Corporation
·
Provide reasonable assurance regarding the prevention
of unauthorized acquisition, use, or disposition of the Companys assets that
could have a material effect on the financial statements.
Management conducted an evaluation
of the effectiveness of the Companys internal control over financial reporting
based on the criteria in
Internal Control
Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on this evaluation under the criteria
in Internal Control- Integrated Framework, management identified a material
weakness in our internal control over financial reporting as described below:
·
Insufficient internal controls over financial
reporting related to accounting for the fair value of junior subordinated debt
and related interest rate swaps. The
material weakness relates only to the applicable accounting treatment to these
complex financial instruments.
The Board of Directors of
VIST Financial Corp., through its Audit Committee, provides oversight to
managements conduct of the financial reporting process. The Audit Committee, which is composed
entirely of independent directors, is also responsible to recommend the
appointment of independent public accountants.
The Audit Committee also meets with management, the internal audit
staff, and the independent public accountants throughout the year to provide
assurance as to the adequacy of the financial reporting process and to monitor
the overall scope of the work performed by the internal audit staff and the
independent public accountants.
The consolidated
financial statements of VIST Financial Corp. have been audited by ParenteBeard
LLC, an independent registered public accounting firm, who was engaged to
express an opinion as to the fairness of presentation of such financial
statements. In connection therewith,
ParenteBeard LLC is required to form an opinion on the effectiveness of VIST
Financial Corp.s internal control over financial reporting. Its opinion on the fairness of the financial
statement presentation, and its opinion on internal control over financial
reporting are included herein.
/s/ ROBERT D.
DAVIS
|
|
/s/ EDWARD C.
BARRETT
|
Robert D. Davis
President and
|
|
Edward C. Barrett
Executive Vice President and
|
Chief Executive Officer
|
|
Chief Financial Officer
|
107
Table
of Contents
Report
of Independent Registered Public Accounting Firm
To the Board of
Directors and Shareholders
VIST Financial Corp.
Wyomissing, Pennsylvania
We
have audited VIST Financial Corp.s (the Company) internal control over
financial reporting as of December 31, 2008, based on criteria established
in
Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Companys management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting included in the
accompanying Managements Report on Internal Control Over Financial
Reporting. Our responsibility is to
express an opinion on the Companys internal control over financial reporting
based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A
companys internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A companys internal control
over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors
of the company; and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
A material weakness is a
control deficiency, or combination of deficiencies, in internal control over
financial reporting, such that there is a reasonable possibility that a
material misstatement of the companys annual or interim financial statements
will not be prevented or detected on a timely basis. The following material
weakness has been identified in the accompanying Managements Report On
Internal Control Over Financial Reporting: insufficient internal controls over
financial reporting related to accounting for the fair value of junior
subordinated debt and related interest rate swaps. The material weakness relates only to the
applicable accounting treatment to these complex financial instruments. This material weakness was considered in
determining the nature, timing, and extent of audit tests applied in our audit
of the December 31, 2008 consolidated financial statements, and this
report does not affect our report dated March 4, 2009 (except for Note 2,
as to which the date is March 26, 2010) on those consolidated financial
statements.
In
our opinion, because of the effect of the material weakness described above on
the achievement of the objectives of the control criteria, VIST Financial Corp.
has not maintained effective internal control over financial reporting as of December 31,
2008, based on criteria established in
Internal
ControlIntegrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
We
have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets and
the related consolidated statements of operations, shareholders equity, and
cash flows of VIST Financial Corp. and its subsidiaries, and our report dated March 4,
2009 (except for Note 2, as to which the date is March 26, 2010) expressed
an unqualified opinion.
|
|
ParenteBeard LLC
|
/s/ ParenteBeard LLC
|
Reading, Pennsylvania
|
|
March 26, 2010
|
|
108
Table of Contents
PART III
Item 10.
Directors, Executive Officers and
Corporate Governance
The information under the
captions MATTER NO. 1Election of Directors, Director Information; Corporate
Governance; Board of Directors and Committee Meetings; and Other Director
and Officer Information included in the Registrants Proxy Statement for the
Annual meeting of Shareholders to be held on April 21, 2009 is
incorporated herein by reference.
Item 11.
Executive Compensation
The information under the
captions Director Compensation; Compensation Discussion and Analysis, Executive
Compensation; and Other Director and Officer information included in the
Registrants Proxy Statement for the Annual Meeting of Shareholders to be held
on April 21, 2009 is incorporated herein by reference.
Item 12.
Security Ownership of Certain
Beneficial Owners and Management and Related Shareholder Matters
The information under the
captions Beneficial Ownership by Directors and Executive Officers and Additional
Information included in the Registrants Proxy Statement for the Annual
Meeting of Shareholders to be held on April 21, 2009 is incorporated
herein by reference.
The following table
provides certain information regarding securities issued or issuable under the
Companys equity compensation plans as of December 31, 2008.
|
|
|
|
|
|
Number
of securities
|
|
|
|
Number
of Securities
|
|
|
|
remaining
available for
|
|
|
|
to
be issued
|
|
Weighted
average
|
|
future
issuance under
|
|
|
|
upon
exercise of
|
|
exercise
price of
|
|
equity
plans (excluding
|
|
|
|
outstanding
options,
|
|
outstanding
options,
|
|
securities
reflected in
|
|
Plan
category
|
|
warrants
and rights
|
|
warrants
and rights
|
|
first
column)
|
|
Equity
compensation plans approved by security holders
|
|
708,889
|
|
$
|
17.2300
|
|
406,921
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans not approved by security holders
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
708,889
|
|
$
|
17.2300
|
|
406,921
|
|
Item 13.
Certain Relationships and Related Transactions,
and Director Independence
The information relating
to certain relationships and related transactions is incorporated herein by
reference to the information disclosed under the captions Corporate Governance
and Other Director and Officer Information included in the Registrants Proxy
Statement for the Annual Meeting of Shareholders to be held on April 21,
2009 is incorporated herein by reference.
Item 14.
Principal Accounting Fees and
Services
The information relating
to principal accounting fees and services is incorporated herein by reference
to the information under the caption Audit and Other Fees included in the
Registrants Proxy Statement for the Annual Meeting of Shareholders to be held
on April 21, 2009.
110
Table
of Contents
PART IV
Item 15.
Exhibits, Financial Statement
Schedules
(a) 1.
Financial Statements.
Consolidated financial
statements are included under Item 8 of Part II of this Form 10-K/A,
Amendment No. 1.
(a) 2.
Financial Statement Schedules.
Financial statement
schedules are omitted because the required information is either not
applicable, not required or is shown in the respective financial statements or
in the notes thereto.
(b)
Exhibits
EXHIBIT
INDEX
Exhibit No.
|
|
Description
|
|
|
|
3.1
|
|
Articles of
Incorporation of VIST Financial Corp., as amended, including Statement with
Respect to Shares for the Fixed rate Cumulative Perpetual Preferred Stock,
Series A (incorporated by reference to Exhibit 3.1 to Registrants
Annual Report on Form 10-K for the year ended December 31, 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 6, 2008).
|
|
|
|
4.1
|
|
Form of Rights
Agreement, dated as of September 19, 2001, between VIST Financial Corp.,
and American Stock Transfer & Trust Company as Rights Agent, as
amended (incorporated by reference to Exhibit 4.1 to Registrants
Current Report on Form 8-K filed on March 6, 2008).
|
|
|
|
4.2
|
|
Amendment to Amended
and Restated Rights Agreement, dated as of December 17, 2008, between
VIST Financial Corp. and American Stock Transfer & Trust Company, as
the rights agent (incorporated by reference to Exhibit 4.3 to
Registrants Current Report on Form 8-K filed on December 23,
2008).
|
|
|
|
10.1
|
|
Employment Agreement,
dated September 19, 2005, among VIST Financial Corp., VIST Bank, and
Robert D. Davis (incorporated herein by reference to Exhibit 10.1 to
Registrants Current Report on Form 8-K/A filed on September 22,
2005).*
|
|
|
|
10.2
|
|
Supplemental Executive
Retirement Plan (incorporated herein by reference to Exhibit 10.1 to
Registrants Quarterly Report on Form 10-QSB for the quarter ended
June 30, 1996).*
|
|
|
|
10.3
|
|
Deferred Compensation
Plan for Directors (incorporated herein by reference to Exhibit 10.2 to
Registrants Quarterly Report on Form 10-QSB for the quarter ended
June 30, 1996).*
|
|
|
|
10.4
|
|
VIST Financial Corp. Non-Employee
Director Compensation Plan (incorporated by reference to Exhibit 10-1 to
Registrants Registration Statement on Form S-8 No. 333-37452).*
|
|
|
|
10.5
|
|
1998 Employee Stock
Incentive Plan (incorporated by reference to Exhibit 99-1 to
Registrants Registration Statement on Form S-8 No. 333-108130).*
|
|
|
|
10.6
|
|
1998 Independent
Directors Stock Option Plan (incorporated by reference to Exhibit 99-1
to Registrants Registration Statement on Form S-8
No. 333-108129).*
|
|
|
|
10.7
|
|
Employment Agreement,
dated September 17, 1998, among VIST Financial Corp., VIST Insurance,
LLC, and Charles J. Hopkins, as amended (incorporated herein by reference to
Exhibit 10.4 to Registrants Annual Report on Form 10-K for the
year ended December 31, 2002).*
|
|
|
|
10.9
|
|
Change in Control
Agreement, dated February 11, 2004, among VIST Financial Corp., VIST
Bank, and Jenette L. Eck. (incorporated by reference to Exhibit 10.10 of
Registrants Annual Report Form 10-K for the year ended
December 31, 2005).*
|
111
Table
of Contents
Exhibit No.
|
|
Description
|
|
|
|
10.11
|
|
Amended and Restated
Employment Agreement, dated as of July 2, 2007, among VIST Financial
Corp., VIST Insurance, LLC, and Michael C. Herr (incorporated by reference to
Exhibit 10.11 to Registrants Annual Report on Form 10-K for the year ended
December 31, 2008).*
|
|
|
|
10.12
|
|
Change in Control
Agreement, dated January 3, 2007, among VIST Financial Corp., VIST Bank,
and Christina S. McDonald (incorporated by reference to Exhibit 10.13 to
Registrants Annual Report on Form 10-K for the year ended
December 31, 2007).*
|
|
|
|
10.13
|
|
Change in Control
Agreement, dated December 12, 2008, among VIST Financial Corp., VIST
Bank, and Terry F. Favilla (incorporated by reference to Exhibit 10.14
to Registrants Annual Report on Form 10-K for the year ended
December 31, 2007).*
|
|
|
|
10.14
|
|
VIST Financial Corp.
2007 Equity Incentive Plan (incorporated by reference to Exhibit A of
the Registrants definitive proxy statement, dated March 9, 2007).*
|
|
|
|
10.15
|
|
Letter Agreement,
including Securities Purchase Agreement - Standard Terms, dated
December 19, 2008, between VIST Financial Corp. and the United States
Department of the Treasury (incorporated by reference to Exhibit 10.1 of
the Registrants Current Report on Form 8-K filed on December 23,
2008).
|
|
|
|
10.16
|
|
Form of Letter
Agreement, dated December 19, 2008, between VIST Financial Corp. and
certain of its executive officers relating to executive compensation
limitations under the United States Treasury Departments Capital Purchase
Program (incorporated by reference to Exhibit 10.16 to Registrants
Annual Report on Form 10-K for the year ended December 31, 2008).*
|
|
|
|
11
|
|
No statement setting
forth the computation of per share earnings is included because such
computation is reflected clearly in the financial statements set forth in
response to Item 8 of this Report.
|
|
|
|
21
|
|
Subsidiaries of VIST
Financial Corp. (incorporated by reference to Exhibit 21 to Registrants
Annual Report on Form 10-K for the year ended December 31, 2008).
|
|
|
|
23.1
|
|
Consent of Beard Miller
Company LLP.
|
|
|
|
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
|
|
Section 1350
Certification of Chief Executive Officer.
|
|
|
|
32.2
|
|
Section 1350
Certification of Chief Financial Officer.
|
*
Denotes a management contract or compensatory plan or
arrangement.
112
Table of Contents
Signatures
Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
March 26, 2010
|
VIST FINANCIAL CORP.
|
|
|
|
By:
|
/s/ ROBERT D.
DAVIS
|
|
|
Robert D. Davis
President and Chief Executive
Officer
|
Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
/s/ ROBERT D.
DAVIS
|
|
President and Chief
Executive
Officer, Director (Principal Executive Officer)
|
|
March 26,
2010
|
Robert D. Davis
|
|
|
|
|
|
|
|
|
/s/ EDWARD C.
BARRETT
|
|
Chief Financial Officer
(Principal
Financial and Accounting Officer)
|
|
March 26,
2010
|
Edward C.
Barrett
|
|
|
|
|
|
|
|
|
/s/ JAMES H.
BURTON
|
|
Director
|
|
March 26,
2010
|
James H. Burton
|
|
|
|
|
|
|
|
|
|
/s/ PATRICK J.
CALLAHAN
|
|
Director
|
|
March 26,
2010
|
Patrick J.
Callahan
|
|
|
|
|
|
|
|
|
|
/s/ ROBERT D.
CARL, III
|
|
Director
|
|
March 26,
2010
|
Robert D.
Carl, III
|
|
|
|
|
|
|
|
|
|
/s/ CHARLES J.
HOPKINS
|
|
Director
|
|
March 26, 2010
|
Charles J.
Hopkins
|
|
|
|
|
|
|
|
|
|
/s/ PHILIP E.
HUGHES, JR.
|
|
Director
|
|
March 26,
2010
|
Philip E.
Hughes, Jr.
|
|
|
|
|
|
|
|
|
|
/s/ ANDREW J.
KUZNESKI III
|
|
Director
|
|
March 26,
2010
|
Andrew J.
Kuzneski III
|
|
|
|
|
|
|
|
|
|
/s/ M. DOMER
LEIBENSPERGER
|
|
Director
|
|
March 26,
2010
|
M. Domer
Leibensperger
|
|
|
|
|
|
|
|
|
|
/s/ FRANK C.
MILEWSKI
|
|
Vice Chairman of the
Board; Director
|
|
March 26,
2010
|
Frank C.
Milewski
|
|
|
|
|
|
|
|
|
|
/s/ MICHAEL J.
ODONOGHUE
|
|
Director
|
|
March 26,
2010
|
Michael J.
ODonoghue
|
|
|
|
|
|
|
|
|
|
/s/ HARRY J.
ONEILL III
|
|
Director
|
|
March 26,
2010
|
Harry J. ONeill
III
|
|
|
|
|
|
|
|
|
|
/s/ BRIAN R.
RICH
|
|
Director
|
|
March 26,
2010
|
Brian R. Rich
|
|
|
|
|
|
|
|
|
|
/s/ KAREN A.
RIGHTMIRE
|
|
Director
|
|
March 26,
2010
|
Karen A.
Rightmire
|
|
|
|
|
|
|
|
|
|
/s/ ALFRED J.
WEBER
|
|
Chairman of the Board;
Director
|
|
March 26,
2010
|
Alfred J. Weber
|
|
|
|
|
113
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