10-K 1 g10k-27578.txt FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to ------------- -------------- Commission file Number: 0-21264 VISTA BANCORP, INC. (Name of small business issuer in its charter)

Registrant's telephone number, including area code: (908) 859-9500 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.50 per share. Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the Registrant was: $116.4 million at March 13, 2002. As of March 13, 2002, the Registrant had outstanding 5,350,637 shares of its common stock, par value $0.50 per share. DOCUMENTS INCORPORATED BY REFERENCE In addition, portions of the Annual Report to stockholders of the Registrant for the year ended December 31, 2001, are incorporated by reference in Part II of this Annual Report. Page 1 of 93 Exhibit Index on Page 35 VISTA BANCORP, INC. FORM 10-K INDEX -----

-2- VISTA BANCORP, INC. FORM 10-K PART I ITEM 1. BUSINESS GENERAL We are a registered bank holding company and New Jersey business corporation and are headquartered in Phillipsburg, New Jersey. In August of 2000, we combined our then two bank subsidiaries - The Phillipsburg National Bank and Trust Company ("Phillipsburg National") and Twin Rivers Community Bank - into one bank, under the national bank charter of Phillipsburg National, but with a new name: Vista Bank, National Association ("Vista Bank"). Our business consists of the management and supervision of Vista Bank. Our principal sources of income are management fees and dividends paid by Vista Bank. At December 31, 2001, we had, on a consolidated basis, approximately: o $740 million in total assets; o $433 million in loans; o $626 million in deposits; and o $ 60 million in stockholders' equity. Vista Bank is a national banking association and member of the Federal Reserve System. The deposits of Vista Bank are insured by the Bank Insurance Fund of the FDIC. Vista Bank is a full-service commercial bank providing a range of services and products, including time and demand deposit accounts, consumer, commercial and mortgage loans, and commercial leases to individuals and small to medium-sized business in their market areas. Vista Bank also operates a full-service trust department. At December 31, 2001, Vista Bank had 10 branch banking offices located in the New Jersey counties of Warren and Hunterdon and 6 branch banking offices located in the Pennsylvania counties of Northampton and Lehigh. We consider our branch banking offices to be a single operating segment, because these branches have similar: o economic characteristics, o products and services, o operating processes, o delivery systems, o customer bases, and o regulatory oversight. We have not operated any other reportable operating segments in the 3-year period ended December 31, 2001. As of December 31, 2001, we had 219 employees on a full-time equivalent basis. The Company and Vista Bank are not parties to any collective bargaining agreement and employee relations are considered to be good. Our growth strategy is centered on the further development of our community-based retail banking network along the Interstate 78 corridor in the counties of Warren and Hunterdon in New Jersey and in the counties of Northampton and Lehigh in Pennsylvania, with the extension of the market to the East in New Jersey and to the West in Pennsylvania. This retail approach to banking has resulted in the growth of demand and savings deposits due to convenience and service. The objective of this strategy is to take advantage of the expected long-term economic growth along the Interstate 78 corridor in New Jersey and Pennsylvania. -3- RECENT DEVELOPMENTS On November 19, 2001, we entered into an Agreement and Plan of Merger with United National Bancorp of Bridgewater, New Jersey. Under this agreement, we will merge with and into United National Bancorp. The merger is expected to close during the second quarter of 2002 and United National Bancorp will be the surviving party to this merger. Moreover, we agreed to merge Vista Bank with and into United Trust Bank, the wholly-owned subsidiary of United National Bancorp. United Trust Bank will be the surviving party to that merger which is expected to close during the third quarter of 2002. Our stockholders, as well as the stockholders of United National Bancorp, will be solicited at meetings to be held in April or May, 2002 for their approval of these mergers. SUPERVISION AND REGULATION The following discussion sets forth the material elements of the regulatory framework applicable to us and Vista Bank and provides certain specific information. This regulatory framework is primarily intended for the protection of investors in our common stock, depositors at Vista Bank and the Bank Insurance Fund that insures bank deposits. To the extent that the following information describes statutory and regulatory provisions, it is qualified by reference to those provisions. A change in the statutes, regulations or regulatory policies applicable to us or Vista Bank may have a material effect on our business. INTERCOMPANY TRANSACTIONS Various governmental requirements, including Sections 23A and 23B of the Federal Reserve Act and new Regulation W of the Federal Reserve Board, limit borrowings by us from Vista Bank and also limit various other transactions between ourselves and Vista Bank. For example, Section 23A of the Federal Reserve Act limits to no more than ten percent of its respective total capital the aggregate outstanding amount of Vista Bank's loans and other "covered transactions" with any particular non-bank affiliate (including a financial subsidiary) and limits to no more than 20 percent of its respective total capital the aggregate outstanding amount of Vista Bank's covered transactions with all of their affiliates (including financial subsidiaries). At December 31, 2001, approximately $11.5 million was available for loans to us from Vista Bank. Section 23A of the Federal Reserve Act also generally requires that Vista Bank's loans to its non-bank affiliates (including financial subsidiaries) be secured, and Section 23B of the Federal Reserve Act generally requires that Vista Bank's transactions with its non-bank affiliates (including financial subsidiaries) be on arm's-length terms. Also, we, Vista Bank and any financial subsidiary are prohibited from engaging in certain "tie-in" arrangements in connection with extensions of credit or provision of property or services. SUPERVISORY AGENCIES As a national bank and member of the Federal Reserve System, Vista Bank is subject to primary supervision, regulation, and examination by the Office of the Comptroller of the Currency and secondary regulation by the FDIC. Vista Bank is subject to extensive statutes and regulations that significantly affect its business and activities. Vista Bank must file reports with its regulators concerning its activities and financial condition and obtain regulatory approval to enter into certain transactions. Vista Bank is also subject to periodic examinations by its regulators to ascertain compliance with various regulatory requirements. Other applicable statutes and regulations relate to insurance of deposits, allowable investments, loans, leases, acceptance of deposits, trust activities, mergers, consolidations, payment of dividends, capital -4- requirements, reserves against deposits, establishment of branches and certain other facilities, limitations on loans to one borrower and loans to affiliated persons, activities of subsidiaries and other aspects of the business of banks. Recent federal legislation has instructed federal agencies to adopt standards or guidelines governing banks' internal controls, information systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation and benefits, asset quality, earnings and stock valuation, and other matters. Legislation adopted in 1994 gives the federal banking agencies greater flexibility in implementing standards on asset quality, earnings, and stock valuation. Regulatory authorities have broad flexibility to initiate proceedings designed to prohibit banks from engaging in unsafe and unsound banking practices. We and Vista Bank are also affected by various other governmental requirements and regulations, general economic conditions, and the fiscal and monetary policies of the federal government and the Federal Reserve Board. The monetary policies of the Federal Reserve Board influence to a significant extent the overall growth of loans, leases, investments, deposits, interest rates charged on loans, and interest rates paid on deposits. The nature and impact of future changes in monetary policies are often not predictable. We are subject to the jurisdiction of the SEC for matters relating to the offering and sale of our securities. We are also subject to the SEC's rules and regulations relating to periodic reporting, insider trader reports and proxy solicitation materials. Our common stock is listed for quotation of prices on The NASDAQ Stock Market under the symbol "VBNJ", and, therefore, we must also comply with the rules of The NASDAQ Stock Market. SUPPORT OF VISTA BANK Under current Federal Reserve Board policy, we are expected to act as a source of financial and managerial strength to Vista Bank by standing ready to use available resources to provide adequate capital funds to Vista Bank during periods of financial adversity and by maintaining the financial flexibility and capital-raising capacity to obtain additional resources for assisting Vista Bank. The support expected by the Federal Reserve Board may be required at times when we may not have the resources or inclination to provide it. If a default occurred with respect to Vista Bank, any capital loans to Vista Bank from us would be subordinate in right of payment to payment of Vista Bank's depositors and certain of its other obligations. LIABILITY OF COMMONLY CONTROLLED BANKS Vista Bank can be held liable for any loss incurred, or reasonably expected to be incurred, by the FDIC in connection with: o the default of a commonly controlled FDIC-insured depository institution or o any assistance provided by the FDIC to a commonly controlled FDIC-insured depository institution in danger of default. "Default" generally is defined as the appointment of a conservator or receiver, and "in danger of default" generally is defined as the existence of certain conditions indicating that a default is likely to occur in the absence of regulatory assistance. -5- DEPOSITOR PREFERENCE STATUTE In the "liquidation or other resolution" of Vista Bank by any receiver, federal legislation provides that deposits and certain claims for administrative expenses and employee compensation against Vista Bank are afforded a priority over the general unsecured claims against Vista Bank, including federal funds and letters of credit. ALLOWANCE FOR LOAN LOSSES There are certain risks inherent in making all loans. These risks include interest rate changes over the time period in which loans may be repaid, risks resulting from changes in our market area economy, risks inherent in dealing with individual borrowers, and, in the case of a loan backed by collateral, risks resulting from uncertainties about the future value of the collateral. Commercial loans and commercial real estate loans comprised 51% of our total consolidated loans as of December 31, 2001. Commercial loans are typically larger than residential real estate loans and consumer loans. Because our loan portfolio contains a significant number of commercial loans and commercial real estate loans with relatively large balances, the deterioration of one or a few of these loans may cause a significant increase in nonperforming loans. An increase in nonperforming loans could result in a loss of earnings from these loans, an increase in the provision for loan losses and loan charge-offs. Vista Bank maintains an allowance for loan losses to absorb any loan losses based on, among other things, our historical experience, an evaluation of economic conditions, and regular reviews of any delinquencies and loan portfolio quality. We cannot assure you that charge-offs in future periods will not exceed the allowance for loan losses or that additional increases in the allowance for loan losses will not be required. Additions to the allowance for loan losses would result in a decrease in our net income and, possibly, our capital. In evaluating our allowance for loan losses, we divide our loans into the following categories: o commercial (including investment property mortgages), o residential mortgages, and o consumer. We evaluate some loans as a group and some individually. Commercial loans with balances exceeding $200 thousand are reviewed individually. After our evaluation of these loans, we allocate portions of our allowance for loan losses to categories of loans based upon the following considerations: o historical loss levels, o prevailing economic conditions, o delinquency trends, o concentrations of credit risk, and o changes in loan policies underwriting standards. We use a self-correcting mechanism to reduce differences between estimated and actual losses. Management and the Board of Directors review the adequacy of the reserve on a quarterly basis and adjustments are made accordingly. For a more in-depth presentation of our allowance for loan losses and the components of this allowance, please refer to Item 7 of this report under Management's Discussion and Analysis of Financial Condition and Results of Operations as well as footnotes 1 and 5 at Exhibit 13 to this report. -6- CAPITAL REQUIREMENTS We are subject to risk-based capital requirements and guidelines imposed by the Federal Reserve Board, which are substantially similar to the capital requirements and guidelines imposed by the Office of the Comptroller of the Currency on Vista Bank. For this purpose, a bank's or bank holding company's assets and certain specified off-balance sheet commitments are assigned to four risk categories, each weighted differently based on the level of credit risk that is ascribed to those assets or commitments. In addition, risk-weighted assets are adjusted for low-level recourse and market-risk equivalent assets. A bank's or bank holding company's capital, in turn, includes the following tiers: o core ("Tier 1") capital, which includes common equity, non-cumulative perpetual preferred stock, a limited amount of cumulative perpetual preferred stock, and minority interests in equity accounts of consolidated subsidiaries, less goodwill, certain identifiable intangible assets, and certain other assets; and o supplementary ("Tier 2") capital, which includes, among other items, perpetual preferred stock not meeting the Tier 1 definition, mandatory convertible securities, subordinated debt and allowances for loan and lease losses, subject to certain limitations, less certain required deductions. We, like other bank holding companies, are required to maintain Tier 1 and "Total Capital" (the sum of Tier 1 and Tier 2 capital, less certain deductions) equal to at least four percent and eight percent of their total risk-weighted assets (including certain off-balance sheet items, such as unused lending commitments and standby letters of credit), respectively. At December 31, 2001, we met both requirements, with Tier 1 and Total Capital equal to 10.7 percent and 11.9 percent of total consolidated risk-weighted assets. The Federal Reserve Board has adopted rules to incorporate market and interest rate risk components into their risk-based capital standards. Amendments to the risk-based capital requirements, incorporating market risk, became effective January 1, 1999. Under the new market-risk requirements, capital will be allocated to support the amount of market risk related to a financial institution's ongoing trading activities. The Federal Reserve Board also requires bank holding companies to maintain a minimum "Leverage Ratio" (Tier 1 capital to adjusted total assets) of three percent if we have the highest regulatory rating and meet certain other requirements, or of three percent plus an additional cushion of at least one to two percentage points if we do not meet these requirements. At December 31, 2001, our leverage ratio was 7.67 percent. The Federal Reserve Board may set capital requirements higher than the minimums noted above for holding companies whose circumstances warrant it. For example, bank holding companies experiencing or anticipating significant growth may be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore, the Federal Reserve Board has indicated that it will consider a "Tangible Tier 1 Leverage Ratio" (deducting all intangibles) and other indicia of capital strength in evaluating proposals for expansion or new activities or when a bank holding company faces unusual or abnormal risk. The Federal Reserve Board has not advised us of any specific minimum leverage ratio that we must maintain. Vista Bank is subject to similar risk-based capital and leverage requirements adopted by the Office of the Comptroller of the Currency. Vista Bank was in -7- compliance with the applicable minimum capital requirements as of December 31, 2001. The Office of the Comptroller of the Currency has not advised Vista Bank of any specific minimum leverage ratio applicable to it. Failure to meet capital requirements could subject Vista Bank to a variety of enforcement remedies, including the termination of deposit insurance by the FDIC, and to certain restrictions on its business. The Federal Deposit Insurance Corporation Improvements Act of 1991 ("FDICIA"), among other things, identifies five capital categories for insured banks - well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized - and requires federal bank regulatory agencies to implement systems for "prompt corrective action" for insured banks that do not meet minimum capital requirements based on these categories. The FDICIA imposed progressively more restrictive constraints on operations, management, and capital distributions, depending on the category in which an institution is classified. Unless a bank is well capitalized, it is subject to restrictions on its ability to offer brokered deposits, on "pass-through" insurance coverage for certain of its accounts, and on certain other aspects of its operations. FDICIA generally prohibits a bank from paying any dividend or making any capital distribution or paying any management fee to its holding company if such bank would thereafter be undercapitalized. An undercapitalized bank is subject to regulatory monitoring and may be required to divest itself of or liquidate subsidiaries. Holding companies of such institutions may be required to divest themselves of such institutions or divest themselves of or liquidate other affiliates. An undercapitalized bank must develop a capital restoration plan, and its parent bank holding company must guarantee compliance with the plan up to the lesser of five percent of such bank's assets at the time it became undercapitalized or the amount needed to comply with the plan. Critically undercapitalized institutions are prohibited from making payments of principal and interest on subordinated debt and are generally subject to the mandatory appointment of a conservator or receiver. Rules adopted by the Office of the Comptroller of the Currency under FDICIA provide that a bank is deemed to be well capitalized if such bank has a total risk-based capital ratio of ten percent or greater, a Tier 1 risk-based capital ratio of six percent or greater, and a leverage ratio of five percent or greater and the institution is not subject to a written agreement, order, capital directive, or prompt corrective action directive to meet and maintain a specific level of any capital measure. As of December 31, 2001, Vista Bank was well-capitalized, based on the prompt corrective action ratios and guidelines described above. It should be noted, however, that a bank's capital category is determined solely for the purpose of applying the prompt corrective action regulations, and that the capital category may not constitute an accurate representation of Vista Bank's overall financial condition or prospects. -8- BROKERED DEPOSITS Under FDIC regulations, no FDIC-insured bank can accept brokered deposits unless it (1) is well capitalized, or (2) is adequately capitalized and receives a waiver from the FDIC. In addition, these regulations prohibit any bank that is not well capitalized from paying an interest rate on brokered deposits in excess of three-quarters of one percentage point over certain prevailing market rates. As of December 31, 2001, Vista Bank held no brokered deposits. DIVIDEND RESTRICTIONS We are a legal entity separate and distinct from Vista Bank. In general, under New Jersey law, we cannot pay a cash dividend if such payment would render us insolvent. Our revenues consist primarily of management fees and dividends paid by Vista Bank. The National Bank Act limits the amount of dividends Vista Bank can pay to us without regulatory approval. Vista Bank may declare and pay dividends to us to the lesser of: o the level of undivided profits, and o absent regulatory approval, an amount not in excess of net income combined with retained net income for the preceding two years. At December 31, 2001, approximately $12.6 million was available for payment of dividends by Vista Bank. In addition, federal bank regulatory authorities have authority to prohibit Vista Bank from engaging in an unsafe or unsound practice in conducting its business. Depending upon the financial condition of Vista Bank in question, the payment of dividends could be deemed to constitute an unsafe or unsound practice. The ability of Vista Bank to pay dividends in the future is currently influenced, and could be further influenced, by bank regulatory policies and capital guidelines. DEPOSIT INSURANCE ASSESSMENTS The deposits of Vista Bank are insured up to regulatory limits by the FDIC and, accordingly, are subject to deposit insurance assessments to maintain the Bank Insurance Fund ("BIF") administered by the FDIC. The FDIC has adopted regulations establishing a permanent risk-related deposit insurance assessment system. Under this system, the FDIC places each insured bank in one of nine risk categories based on Vista Bank's capitalization and supervisory evaluations provided to the FDIC by the Office of the Comptroller of the Currency. An insured bank's insurance assessment rate is then determined by the risk category in which it is classified by the FDIC. In the light of the current financial position of the federal deposit insurance funds and the recent low number of depository institution failures, the annual insurance premiums on bank deposits insured by the BIF vary between $0.00 per $100 of deposits for banks classified in the highest capital and supervisory evaluation categories to $0.27 per $100 of deposits for banks classified in the lowest capital and supervisory evaluation categories. BIF assessment rates are subject to semi-annual adjustment by the FDIC within a range of up to five basis points without public comment. The FDIC also possesses authority to impose special assessments from time to time. The Deposit Insurance Funds Act provides for assessments to be imposed on insured depository institutions with respect to deposits insured by the BIF ( in addition to assessments currently imposed on depository institutions with respect to BIF-insured deposits) to pay for the cost of Financing Corporation ("FICO") funding. The FDIC established the FICO assessment rates effective for the fourth quarter 2001 at approximately $0.0202 per $100 annually for BIF-assessable deposits. The FICO assessments are adjusted quarterly to reflect changes in the assessment bases of the FDIC insurance funds and do not vary -9- depending upon a depository institution's capitalization or supervisory evaluations. In 2001, we paid FICO assessments, on a consolidated basis, of $111 thousand. INTERSTATE BANKING AND BRANCHING Under the Riegle-Neal Interstate Banking and Branching Efficiency Act ("Riegle-Neal"), subject to certain concentration limits and other requirements: o bank holding companies, such as we, are permitted to acquire banks and bank holding companies located in any state; o any bank that is a subsidiary of a bank holding company is permitted to receive deposits, renew time deposits, close loans, service loans, and receive loan payments as an agent for any other depository institution subsidiary of that bank holding company; and o banks are permitted to acquire branch offices outside their home states by merging with out-of-state banks, purchasing branches in other states, and establishing DE NOVO branch offices in other states. The ability of banks to acquire branch offices through purchase or opening of other branches is contingent, however, on the host state having adopted legislation "opting in" to those provisions of Riegle-Neal. In addition, the ability of a bank to merge with a bank located in another state is contingent on the host state not having adopted legislation "opting out" of that provision of Riegle-Neal. Furthermore, Riegle-Neal provides that appropriate federal supervisory agencies may approve a merger of Vista Bank with another bank located in a different state or the establishment by Vista Bank of a new branch office either by acquisition or DE NOVO. Such transactions may be completed if the relevant state has opted-in to Riegle-Neal. With respect to both interstate branching by acquisition or merger, New Jersey has opted-in. However, New Jersey law does not contain an "opt-in" to the DE NOVO interstate branching provisions. As of the date of this report, we are not contemplating any interstate acquisitions of a bank or a branch office outside of the State of New Jersey and the Commonwealth of Pennsylvania. CONTROL ACQUISITIONS The Change in Bank Control Act prohibits a person or group of persons from acquiring "control" of a bank holding company, unless the Federal Reserve Board has been notified and has not objected to the transaction. Under a rebuttable presumption established by the Federal Reserve Board, the acquisition of ten percent or more of a class of voting stock of a bank holding company with a class of securities registered under Section 12 of the Exchange Act, such as we, would, under the circumstances set forth in the presumption, constitute acquisition of control of the bank holding company. In addition, a company is required to obtain the approval of the Federal Reserve Board under the Bank Holding Company Act before acquiring 25 percent (five percent in the case of an acquirer that is a bank holding company) or more of any class of outstanding common stock of a bank holding company, such as we, or otherwise obtaining control or a "controlling influence" over that bank holding company. PERMITTED NON-BANKING ACTIVITIES The Federal Reserve Board permits us or our subsidiaries to engage in nonbanking activities so closely related to banking or managing or controlling banks as to be a proper incident thereto. For a discussion of other activities that are financial in nature in which we can engage, see the caption that follows entitled Financial Services Modernization. The Federal Reserve Board requires us to serve as a source of financial and managerial strength to Vista Bank and not to conduct our operations in an unsafe and unsound manner. Whenever the Federal Reserve Board believes an -10- activity that we are doing or our control of a nonbank subsidiary (other than a nonbank subsidiary of Vista Bank) constitutes a serious risk to the financial safety, soundness, or stability of Vista Bank and is inconsistent with sound banking principles or the purposes of the federal banking laws, the Federal Reserve Board may require us to terminate that activity or to terminate control of that subsidiary. While the types of permissible activities are subject to change by the Federal Reserve Board, the principal nonbanking activities that presently may be conducted by a bank holding company or its subsidiary without prior approval of the Federal Reserve Board are: o SERVICING ACTIVITIES. Furnishing services for, or establish or acquire a company that engages solely in servicing activities for: - us or Vista Bank in connection with activities authorized by law, such as commitments entered into by our subsidiaries with third parties as long as we or our servicing company comply with published guidelines and do not act as a principal in dealing with third parties. - the internal operations of Vista Bank, such as: - accounting, auditing and appraising; - advertising and public relations; - data processing and transmission services, data bases or facilities; - personnel services; - courier services; - holding or operating property used by our subsidiaries or for their future use; - liquidating property acquired from Vista Bank; and - selling, purchasing or underwriting insurance, such as blanket bond insurance, group insurance for employees and property and casualty insurance. o SAFE DEPOSIT BUSINESS. Conduct a safe deposit business or acquire voting securities of a company that conducts such business. o SECURITIES OR PROPERTY REPRESENTING FIVE PERCENT OR LESS OF ANY COMPANY. Acquiring five percent or less of the outstanding voting securities of any company regardless of that company's activities. o EXTENDING CREDIT AND SERVICING LOANS. Making, acquiring, brokering, or servicing loans or other extensions of credit (including factoring, issuing letters of credit and accepting drafts) for the company's account or for the account of others. o ACTIVITIES RELATED TO EXTENDING CREDIT. Any activity usual in connection with making, acquiring, brokering or servicing loans or other extensions of credit, as determined by the Federal Reserve Board. The Federal Reserve Board has determined that the following activities are usual in connection with making, acquiring, brokering or servicing loans or other extensions of credit: - REAL ESTATE AND PERSONAL PROPERTY APPRAISING. Performing appraisals of real estate and tangible and intangible personal property, including securities. - ARRANGING COMMERCIAL REAL ESTATE EQUITY FINANCING. Acting as intermediary for the financing of commercial or industrial income-producing real estate by arranging for the transfer of the title, control, and risk of such a real estate project to one or more investors, if the bank holding company and its affiliates do not have an interest in, or participate in managing or developing, a real estate project for which it arranges equity financing, and do not promote or sponsor the development of the property. - CHECK-GUARANTY SERVICES. Authorizing a subscribing merchant to accept personal checks tendered by the merchant's customers in payment for goods and services, and purchasing from the merchant validly authorized checks that are subsequently dishonored. - COLLECTION AGENCY SERVICES. Collecting overdue accounts receivable, either retail or commercial. -11- - CREDIT BUREAU SERVICES. Maintaining information related to the credit history of consumers and providing the information to a credit grantor who is considering a borrower's application for credit or who has extended credit to the borrower. - ASSET MANAGEMENT, SERVICING, AND COLLECTION ACTIVITIES. Engaging under contract with a third party in asset management, servicing, and collection of assets of a type that an insured depository institution may originate and own, if the company does not engage in real property management or real estate brokerage services as part of these services. - ACQUIRING DEBT IN DEFAULT. Acquiring debt that is in default at the time of acquisition under certain conditions. - REAL ESTATE SETTLEMENT SERVICING. Providing real estate settlement services. o LEASING PERSONAL OR REAL PROPERTY. Leasing personal or real property or acting as agent, broker, or adviser in leasing such property under certain conditions. o OPERATING NONBANK DEPOSITORY INSTITUTIONS: - INDUSTRIAL BANKING. Owning, controlling, or operating an industrial bank, Morris Plan bank, or industrial loan company, so long as the institution is not a bank. - OPERATING SAVINGS ASSOCIATION. Owning, controlling or operating a savings association, if the savings association engages only in deposit-taking activities, lending, and other activities that are permissible for bank holding companies. o TRUST COMPANY FUNCTIONS. Performing functions or activities that may be performed by a trust company (including activities of a fiduciary, agency, or custodial nature), in the manner authorized by federal or state law, so long as the company is not a bank for purposes of the Bank Holding Company Act. o FINANCIAL AND INVESTMENT ADVISORY ACTIVITIES. Acting as investment or financial advisor to any person, including (without, in any way, limiting the foregoing): - Serving as investment adviser (as defined in section 2(a) (20) of the Investment Company Act of 1940, 15 U.S.C. 80a-2 (a)(20)), to an investment company registered under that act, including sponsoring, organizing, and managing a closed-end investment company; - Furnishing general economic information and advice, general economic statistical forecasting services, and industry studies; - Providing advice in connection with mergers, acquisitions, divestitures, investments, joint ventures, leveraged buyouts, recapitalizations, capital structurings, financing transactions and similar transactions, and conducting financial feasibility studies; - Providing information, statistical forecasting, and advice with respect to any transaction in foreign exchange, swaps, and similar transactions, commodities, and any forward contract, option, future, option on a future, and similar instruments; - Providing educational courses, and instructional materials to consumers on individual financial management matters; and - Providing tax-planning and tax-preparation services to any person. -12- o AGENCY TRANSACTIONAL SERVICES FOR CUSTOMER INVESTMENTS: - SECURITIES BROKERAGE. Providing securities brokerage services (including securities clearing and/or securities execution services on an exchange), whether alone or in combination with investment advisory services, and incidental activities (including related securities credit activities and custodial services), if the securities brokerage services are restricted to buying and selling securities solely as agent for the account of customers and do not include securities underwriting or dealing. - RISKLESS PRINCIPAL TRANSACTIONS. Buying and selling in the secondary market all types of securities on the order of customers as a "riskless principal" to the extent of engaging in a transaction in which the company, after receiving an order to buy (or sell) a security from a customer, purchases (or sells) the security for its own account to offset a contemporaneous sale to (or purchase from) the customer. This does not include: (A) Selling bank-ineligible securities at the order of a customer that is the issuer of the securities, or selling bank-ineligible securities in any transaction where the company has a contractual agreement to place the securities as agent of the issuer; or (B) Acting as a riskless principal in any transaction involving a bank-ineligible security for which the company or any of its affiliates acts as underwriter (during the period of the underwriting or for 30 days thereafter) or dealer. - PRIVATE PLACEMENT SERVICES. Acting as agent for the private placement of securities in accordance with the requirements of the Securities Act of 1933 ("1933 Act") and the rules of the Securities and Exchange Commission, if the company engaged in the activity does not purchase or repurchase for its own account the securities being placed, or hold in inventory unsold portions of issues of these securities. - FUTURES COMMISSION MERCHANT. Acting as a futures commission merchant ("FCM") for unaffiliated persons in the execution, clearance, or execution and clearance of any futures contract and option on a futures contract traded on an exchange in the United States or abroad under certain conditions. - OTHER TRANSACTIONAL SERVICES. Providing to customers as agent transactional services with respect to swaps and similar transactions. o INVESTMENT TRANSACTIONS AS PRINCIPAL: - UNDERWRITING AND DEALING IN GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS. Underwriting and dealing in obligations of the United States, general obligations of states and their political subdivisions, and other obligations that state member banks of the Federal Reserve System may be authorized to underwrite and deal in under 12 U.S.C. 24 and 335, including banker's acceptances and certificates of deposit, under the same limitations as would be applicable if the activity were performed by the bank holding company's subsidiary member banks or its subsidiary nonmember banks as if they were member banks. - INVESTING AND TRADING ACTIVITIES. Engaging as principal in: (A) Foreign exchange; (B) Forward contracts, options, futures, options on futures, swaps, and similar contracts, whether traded on exchanges or not, based on any rate, price, financial asset (including gold, silver, platinum, palladium, copper, or any other metal approved by the Federal Reserve Board), nonfinancial asset, or group of assets, other than a bank-ineligible security under certain conditions. (C) Forward contracts, options, futures, options on futures, swaps, and similar contracts, whether traded on exchanges or not, based on an index of a rate, a price, or the value of any financial asset, nonfinancial asset, or group of assets, if the contract requires such settlement. -13- - BUYING AND SELLING BULLION, AND RELATED ACTIVITIES. Buying, selling and storing bars, rounds, bullion, and coins of gold, silver, platinum, palladium, copper, and any other metal approved by the Federal Reserve Board, for the company's own account and the account of others, and providing incidental services such as arranging for storage, safe custody, assaying, and shipment. o MANAGEMENT CONSULTING AND COUNSELING ACTIVITIES: - MANAGEMENT CONSULTING. Providing management consulting advice under certain conditions. - EMPLOYEE BENEFITS CONSULTING SERVICES. Providing consulting services to employee benefit, compensation and insurance plans, including designing plans, assisting in the implementation of plans, providing administrative services to plans, and developing employee communication programs for plans. - CAREER COUNSELING SERVICES. Providing career counseling services to: (A) A financial organization and individuals currently employed by, or recently displaced from, a financial organization; (B) Individuals who are seeking employment at a financial organization; and (C) Individuals who are currently employed in or who seek positions in the finance, accounting, and audit departments of any company. o SUPPORT SERVICES: - COURIER SERVICES. Providing courier services for: (A) Checks, commercial papers, documents, and written instruments (excluding currency or bearer-type negotiable instruments) that are exchanged among banks and financial institutions; and (B) Audit and accounting media of a banking or financial nature and other business records and documents used in processing such media. - PRINTING AND SELLING MICR-ENCODED ITEMS. Printing and selling checks and related documents, including corporate image checks, cash tickets, voucher checks, deposit slips, savings withdrawal packages, and other forms that require Magnetic Ink Character Recognition ("MICR") encoding. o INSURANCE AGENCY AND UNDERWRITING: - CREDIT INSURANCE. Acting as principal, agent, or broker for insurance (including home mortgage redemption insurance) that is: (A) Directly related to an extension of credit by the bank holding company or any of its subsidiaries; and (B) Limited to ensuring the repayment of the outstanding balance due on the extension of credit in the event of the death, disability, or involuntary unemployment of the debtor. - FINANCE COMPANY SUBSIDIARY. Acting as agent or broker for insurance directly related to an extension of credit by a finance company that is a subsidiary of a bank holding company under certain conditions. - Engaging in any general insurance agency activities. -14- o COMMUNITY DEVELOPMENT ACTIVITIES: - FINANCING AND INVESTMENT ACTIVITIES. Making equity and debt investments in corporations or projects designed primarily to promote community welfare, such as the economic rehabilitation and development of low-income areas by providing housing, services, or jobs for residents. - ADVISORY ACTIVITIES. Providing advisory and related services for programs designed primarily to promote community welfare. o MONEY ORDERS, SAVINGS BONDS, AND TRAVELER'S CHECKS. The issuance and sale at retail of money orders and similar consumer-type payment instruments; the sale of U.S. savings bonds; and the issuance and sale of traveler's checks. o DATA PROCESSING. Providing data processing and data processing and data transmission services, facilities (including data processing and data transmission hardware, software, documentation, or operating personnel), data bases, advice, and access to such services, facilities, or data bases by any technological means under certain conditions. COMMUNITY REINVESTMENT ACT The Community Reinvestment Act of 1977, AS AMENDED (the "CRA"), and the regulations promulgated to implement the CRA are designed to create a system for bank regulatory agencies to evaluate a depository institution's record in meeting the credit needs of its community. CRA regulations establish tests for evaluating both small and large depository institutions' investment in the community. A "small bank" is defined as a bank which has total assets of less than $250 million and is independent or is an affiliate of a holding company with less than $1 billion in assets. There are streamlined procedures for evaluating small banks and the frequency of CRA examinations will occur less often based upon a bank's CRA rating. A large retail institution is one which does not meet the "small bank" definition. A large retail institution can be evaluated under one of two tests: (1) a three-part test evaluating the institution's lending, service and investment performance; or (2) a "strategic plan" designed by the institution with community involvement and approved by the appropriate federal bank regulator. A large institution must choose one of these options under which, to be examined. In addition, the CRA regulations include separate rules regarding the manner in which "wholesale banks" and "limited purpose banks" will be evaluated for compliance. For the purposes of the CRA regulations and based upon financial information as of December 31, 2001, Vista Bank is deemed to be a large retail institution. Prior to August 21, 2000, Vista Bank's predecessors - Phillipsburg National and Twin Rivers - were evaluated for CRA compliance using the lending, service and investment tests and streamlined procedures, respectively. Each received a "satisfactory" rating. CONCENTRATION We are not dependent for deposits nor exposed by loan concentrations to a single customer or to a small group of customers the loss of any one or more of which would have a materially adverse effect on our financial condition. FINANCIAL SERVICES MODERNIZATION On November 12, 1999, the President signed into law the Gramm-Leach-Bliley Act (the "GLB Act") which took effect on March 11, 2000. The GLB Act contains some of the most far-reaching changes governing the operations of companies doing business in the financial services industry. The GLB Act eliminates the restrictions placed on the activities of banks and bank holding companies. By creating two new structures - financial holding companies and financial subsidiaries - we and Vista Bank will be allowed to provide a wider array of financial services and products that were reserved only for insurance companies and securities firms. In addition, we can now affiliate with an insurance company and a securities firm. We would qualify to elect to become a financial holding company. This election is made to the Federal Reserve Board. A financial holding company has authority to engage in activities referred to as "financial activities" that are not -15- permitted to bank holding companies. A financial holding company may also affiliate with companies that are engaged in financial activities. A "financial activity" is an activity that does not pose a safety and soundness risk and is: o financial in nature, o incidental to an activity that is financial in nature, or o complimentary to a financial activity. The Act lists certain activities as financial in nature: o Lending, investing or safeguarding money or securities; o Underwriting insurance or annuities, or acting as an insurance or annuity principal, agent or broker; o Providing financial or investment advice; o Issuing or selling interests in pools of assets that a bank could hold; o Underwriting, dealing in or making markets in securities; o Engaging in any activity that the Federal Reserve Board found before the Act to be related closely to banking (See the section in this report entitled "Permitted Non-banking Activities"); o Engaging within the United States in any activity that a bank holding company could engage in outside of the country, if the Federal Reserve Board determined before the Act that the activity was usual in connection with banking or other financial operations internationally; o Merchant banking - acquiring or controlling ownership interests in an entity engaged in impermissible activities, if: the interests are not held by a depository institution; the interests are held by a securities affiliate or an investment advisory affiliate of an insurance company as part of underwriting, merchant or investment banking activity; the interests are held long enough to enable their sale in a manner consistent with the financial viability of such an activity; and we do not control the entity except to the extent necessary to obtain a reasonable return on the investment; or o Insurance portfolio investing - acquiring or controlling ownership interests in an entity engaged in impermissible activities, if: the interests are not held by a depository institution; the interests are held by an insurance or annuity company; the interests represent investments made in the ordinary course of business in accordance with state law; and we do not control the entity except to the extent necessary to obtain a reasonable return on the investment. The Act instructs the Federal Reserve Board to adopt a regulation or order defining certain additional activities as financial in nature, to the extent they are consistent with the purposes of the Act. These are: o Lending, exchanging, transferring, investing for others or safeguarding financial assets other than money or securities; o Providing any method of transferring financial assets; and o Arranging, effecting or facilitating financial transactions for third parties. Other activities also may be decided by the Federal Reserve Board to be financial in nature or incidental to a financial activity if they meet specified criteria. The Federal Reserve Board is instructed to consider the purposes of the Act and the Bank Holding Company Act; changes in the market in which financial holding companies compete; changes in the technology used to deliver financial services; and whether the proposed activity is necessary or appropriate to allow a financial holding company and its affiliates to compete effectively, deliver services efficiently and offer services through the most advanced technological means available. The Act gives national banks authority to use "financial subsidiaries" to engage in financial activities. This authority has some limitations. A financial -16- subsidiary of Vista Bank may not, as a principal: o underwrite insurance or annuities; o engage in real estate development or investment; o engage in merchant banking; or o engage in insurance portfolio investment activities. A bank's investment in a financial subsidiary will affect the way it calculates its capital. Vista Bank must deduct from its assets and stockholders' equity the total of its investments in financial subsidiaries. Moreover, a bank must present its financial information in two ways: in accordance with generally accepted accounting principles, and, separately, in a manner that reflects the segregation of Vista Bank's investments in financial subsidiaries. As of the date of this report, we have not considered whether to elect to become a financial holding company, or to engage in any financial activities, or to establish any financial subsidiaries for Vista Bank. PRIVACY Title V of the GLB Act creates a minimum federal standard of privacy by limiting the instances which we and Vista Bank may disclose nonpublic personal information about a consumer of our products or services to nonaffiliated third parties. A state, for example: New Jersey or Pennsylvania, can impose a greater or more restrictive standard of privacy than the GLB Act. The GLB Act distinguishes "consumers" from "customers" for purposes of the notice requirements imposed by this Act. We are required to give a "consumer" a privacy notice only if we intend to disclose nonpublic personal information about the consumer to a nonaffiliated third party. However, by contrast, we are required to give a "customer", a notice of our privacy policy at the time of the establishment of a customer relationship and then annually thereafter during the continuation of the customer relationship. The term consumer is different from the term customer. A consumer means an individual who obtains or has obtained a financial product or service from Vista Bank that is to be used primarily for personal, family or household purposes or that individual's representative. A customer of Vista Bank is an individual with a continuous relationship with Vista Bank. The Office of the Comptroller of the Currency issued regulations (effective November 13, 2000, however, compliance is optional until July 1, 2001) which give several examples of a consumer and customer relationship: o An individual who applies to Vista Bank for credit for personal, family or household purposes is a consumer of a financial service, regardless of whether the credit is extended. o An individual who provides nonpublic personal information to Vista Bank in order to obtain a determination about whether he or she may qualify for a loan to be used primarily for personal, family, or household purposes is a consumer of a financial service, regardless of whether the loan is extended by Vista Bank or another financial institution. o An individual who provides nonpublic personal information to Vista Bank in connection with obtaining or seeking to obtain financial, investment or economic advisory services is a consumer regardless of whether Vista Bank establishes an ongoing advisory relationship. o An individual who negotiates a workout with Vista Bank for a loan that Vista Bank owns is a consumer regardless of whether Vista Bank originally extended the loan to the individual. o An individual who has a loan from Vista Bank is Vista Bank's consumer even if Vista Bank: - Hires an agent to collect on the loan; - Sells the rights to service the loan; or -17- - Bought the loan from the financial institution that originated the loan. o An individual is not Vista Bank's consumer solely because Vista Bank processes information about the individual on behalf of a financial institution that extended the loan to the individual. On the other hand, several examples of a customer follow: o A customer has a continuing relationship with Vista Bank if the customer: - Has a deposit, loan, credit, trust or investment account with Vista Bank; - Purchases an insurance product from Vista Bank; - Holds an investment product through Vista Bank; - Enters into an agreement or understanding with Vista Bank whereby Vista Bank undertakes to arrange or broker a home mortgage loan for the customer; - Has a loan that Vista Bank services where Vista Bank owns the servicing rights; - Enters into a lease of personal property with Vista Bank; or - Obtains financial, investment, or economic advisory services from Vista Bank for a fee. o A person does not, however, have a continuing relationship with Vista Bank and therefore is not a customer, if: - The person only obtains a financial product or service in an isolated transaction, such as withdrawing cash from Vista Bank's ATM or purchasing a cashier's check or money order; - Vista Bank sells the person's loan and does not retain the rights to service the loan; or - Vista Bank sells the person airline tickets, travel insurance or traveler's checks in an isolated transaction. In general, Vista Bank cannot disclose to a nonaffiliated third party any nonpublic personal information of its customers and consumers unless Vista Bank provides its customer or consumer with a notice that includes: o the policies and practices of Vista Bank with regard to: - disclosing nonpublic personal information to nonaffiliated third parties; - the categories of persons to whom the information is or may be disclosed; and - the policy for disclosure to former customers; o categories of nonpublic personal information that are collected by Vista Bank; o the policies that Vista Bank maintains to protect the confidentiality and security of nonpublic personal information; o the disclosure, if required, under the Fair Credit Reporting Act; and o in addition, Vista Bank must provide an opt out notice to each of its consumers and customers that explains accurately the right to opt out of any disclosure by Vista Bank of the customer's or consumer's nonpublic personal information and the means by which the customer or consumer may exercise the opt out right. The GLB Act sets forth a new requirement that this notice to a consumer or customer must be in clear and conspicuous or "plain English" language and presentation. The proposed regulations give several examples of the rules to follow in drafting these notices: o Vista Bank makes its notice reasonably understandable if, Vista Bank: - Presents the information contained in the notice in clear, concise sentences, paragraphs and sections; - Uses short explanatory sentences and bullet lists, whenever possible; -18- - Uses definite, concrete, everyday words and active voice, whenever possible; - Avoids multiple negatives; - Avoids legal and highly technical business terminology; and - Avoids boilerplate explanations that are imprecise and readily subject to different interpretations. o Vista Bank designs its notice to call attention to the nature and significance of the information contained in the notice if, to the extent applicable, Vista Bank: - Uses a plain-language heading to call attention to the notice; - Uses a typeface and type size that are easy to read; and - Provides wide margins and ample line spacing. o If Vista Bank provides a notice on the same form as another notice or other documents, Vista Bank designs its notice to call attention to the nature and significance of the information contained in the notice if Vista Bank uses: - Larger type size(s), boldface or italics in the text; - Wider margins and line spacing in the notice; or - Shading or sidebars to highlight the notice, whenever possible. The GLB Act creates certain exceptions to the prohibition on disclosure of nonpublic personal information of customers and consumers. Some of these exceptions are: o with the consent of the customer or consumer; o to effect, administer or enforce a transaction requested or authorized by the customer or consumer; o the servicing or processing of a financial product or service requested or authorized by the customer or consumer; o the maintaining or servicing of the customer's or consumer's account with Vista Bank or with another entity as part of a private label credit card program; o disclosure to persons holding a legal or beneficial interest relating to the customer or consumer or to persons acting in a fiduciary or representative capacity on behalf of the customer or consumer; o providing information to insurance rate advisory organizations, guaranty funds or agencies, rating agencies, persons assessing Vista Bank's compliance with industry standards and Vista Bank's attorneys, accountants and auditors; and o disclosure permitted under other laws, such as the Right to Financial Privacy Act, to law enforcement agencies or under local and state laws. Vista Bank cannot disclose an account number or similar form of access code for a credit card account, deposit account or transaction account of a customer or consumer to any non-affiliated third party for use in telemarketing, direct mail marketing or other marketing through electronic mail to the customer or consumer. TERRORIST ACTIVITIES The Federal Bureau of Investigation or FBI has (and will) send our banking regulatory agencies lists of the names of persons suspected of involvement in the September 11, 2001, terrorist attacks on New York City and Washington, DC. Vista Bank has been requested (and will be requested) to search its records for any relationships or transactions with persons on those lists. If Vista Bank finds any relationships or transactions, Vista Bank must file a suspicious activity report and contact the FBI. The Office of Foreign Assets Control or OFAC of the Department of the Treasury has (and will) send our banking regulatory agencies lists of names of persons -19- and organizations suspected of aiding, harboring or engaging in terrorist acts. If Vista Bank finds any name on any transaction, account or wire transfer that is on an OFAC list, Vista Bank must freeze such account, file a suspicious activity report and notify the FBI. Vista Bank has appointed an OFAC compliance officer to oversee the inspection of its accounts and the filing of any notifications. SUBPRIME LENDING In January 2001, our federal banking regulatory agencies jointly issued expanded examination and supervision guidance relating to subprime lending activities. In the guidance, "subprime" lending generally refers to programs that target borrowers with weakened credit histories or lower repayment capacity. The guidance principally applies to institutions with subprime lending programs with an aggregate credit exposure equal to or greater than 25 percent of an institution's Tier 1 capital. Such institutions would be subject to more stringent risk management standards and, in many cases, additional capital requirements. As a starting point, the guidance generally expects that such an institution would hold capital against subprime portfolios in an amount that is one and one-half to three times greater than the amount appropriate for similar types of non-subprime assets. Vista Bank does not engage in any subprime lending programs. In December 2000, the Federal Reserve Board published proposed regulations which would implement the Home Ownership and Equity Protection Act or HOEPA. This Act imposes additional disclosure requirements and certain substantive limitations on certain mortgage loans with rates or fees above specified levels. The proposed regulations would lower the rate levels that trigger the application of HOEPA and would include additional fees in the calculation of the fee amount that triggers HOEPA. The loans that Vista Bank currently makes are generally below the rate and fee levels that trigger HOEPA. VISTA BANK, NATIONAL ASSOCIATION On August 21, 2000, we merged our two subsidiary banks - The Phillipsburg National Bank and Trust Company ("Phillipsburg National") and Twin Rivers Community Bank ("Twin Rivers") - under the charter of Phillipsburg National, but with a name change to: Vista Bank, National Association or ("Vista Bank"). In addition, we combined the two Boards of Directors of these banks under Vista Bank and appointed the following persons to their respective offices: Barbara Harding - Chairperson, President and Chief Executive Officer David L. Hensley - Senior Executive Vice President, Retail and Commercial Lending Division Marc S. Winkler - Senior Executive Vice President, Retail Banking Division William F. Keefe - Executive Vice President, Chief Financial Officer Vista Bank, as a national banking association, is under the direct supervision of the Office of the Comptroller of the Currency. Its legal headquarters is located at 305 Roseberry Street, Phillipsburg, New Jersey 08865. As a result of this merger, Vista Bank succeeded to all of the assets and liabilities (including the deposit accounts) of Twin Rivers. See Item 2 of this report for a more detailed description of Vista Bank's branch offices. Vista Bank engages in full-service commercial and consumer banking and trust business, including accepting time and demand deposits, making secured and unsecured commercial and consumer loans, financing commercial transactions and making construction and mortgage loans. Vista Bank succeeded also to the Trust Department of Phillipsburg National and provides trust and fiduciary services as executor and trustee under wills and deeds, as guardian and custodian and as trustee and agent for pension, profit-sharing and other employee benefit trusts as well as various investment, pension and estate planning services. Vista Bank's trust and fiduciary services include service as a transfer agent, registrar of stock and bond issues and as an escrow agent. Vista Bank has a relatively stable deposit base and no material amount of deposits is obtained from a single depositor or group of depositors (including federal, state and local governments). Vista Bank's predecessor banks had not -20- experienced any significant seasonal fluctuations in the amount of their deposits and we do not expect any such seasonal fluctuations in the deposits of Vista Bank. Vista Bank has one wholly-owned subsidiary, Phillipsburg Investment, Inc., a New Jersey investment company. Phillipsburg Investment, Inc. began operations in June 1988. Vista Bank provides investment management services to this subsidiary on a fee-basis for staff time, accounting, rent and other administrative services. As of December 31, 2001, Phillipsburg Investment, Inc. held approximately $130 million in securities available for sale, short term investments and cash on behalf of Vista Bank. Competition All phases of Vista Bank's business are highly competitive. Vista Bank's primary market area is the New Jersey counties of Hunterdon and Warren and the Pennsylvania counties of Lehigh and Northampton. In New Jersey, Vista Bank considers its major competitors to be United Trust Bank, headquartered in Bridgewater, New Jersey; PNC Bank Corp., headquartered in Pittsburgh, Pennsylvania; Wachovia Corporation, headquartered in Charlotte, North Carolina; Fleet Financial Group, headquartered in Providence, Rhode Island (which acquired Summit Bank, headquartered in Princeton, New Jersey); and Commerce Bank, headquartered in Cherry Hill, New Jersey. In terms of assets and liabilities, Vista Bank is smaller than its major New Jersey competitors. In Pennsylvania, Vista Bank considers its major competitors to be: Wachovia Corporation, headquartered in Charlotte, North Carolina; Fulton Financial Corporation, headquartered in Lancaster, Pennsylvania; Sovereign Bank, headquartered in Wyomissing, Pennsylvania and Fleet Financial Group, headquartered in Providence, Rhode Island. In terms of assets and liabilities, Vista Bank is smaller than its major Pennsylvania competitors. FUTURE LEGISLATION Various legislation, including proposals to substantially change the financial institution regulatory system and to expand or contract the powers of banking institutions and bank holding companies, is from time to time introduced in the Congress. This legislation may change banking statutes and our operating environment in substantial and unpredictable ways. If enacted, such legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions. We can not accurately predict whether any of this potential legislation will ultimately be enacted, and, if enacted, the ultimate effect that it, or implementing regulations, would have upon our financial condition or results of operations. ITEM 2. PROPERTIES Our corporate headquarters are located at 305 Roseberry Street, Phillipsburg, New Jersey. We own this facility which has approximately 18,393 square feet. Our remaining banking centers are described as follows:

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For information with respect to obligations for lease rentals, refer to Note 12 of the Notes to Consolidated Financial Statements in our Annual Report filed at Exhibit 13 to this report and is incorporated in its entirety by reference. The branches that are under lease have customary commercial lease options to extend the terms of the applicable lease. Our facilities are suitable and adequate for current and immediate future purposes. ITEM 3. LEGAL PROCEEDINGS On February 26, 2001, Lawrence B. Seidman and Seidman and Associates, LLC (collectively "Seidman") applied to the New Jersey Chancery Court for a temporary restraining order enjoining enforcement of amended Section 204 of Vista's Bylaws. The court issued a letter opinion, dated March 12, 2001, and an order, dated March 13, 2001, which ruled in favor of Vista by denying Seidman's request for injunctive relief. On interlocutory appeal, the Appellate Division affirmed the lower court's decision in favor of Vista to deny Seidman's request -22- by order dated March 16, 2001. Nevertheless, Seidman continued this matter and Vista made a motion for summary judgment which was granted on October 2, 2001, dismissing Seidman's complaint in its entirety. Then, on October 26, 2001, Seidman filed an appeal to the grant of summary judgment. The matter is currently before the Appellate Division which will likely schedule oral argument. Vista will vigorously continue to contest the Seidman legal action and defend its right to amend Section 204 as it did. It is the opinion of Vista's legal counsel that this legal action will have no material affect on Vista's financial condition or income. Vista and Vista Bank are not parties to any legal proceedings that could have any significant effect upon Vista's financial condition or income. In addition, Vista and Vista Bank are not parties to any legal proceedings under federal and state environmental laws. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of 2001. PART II. ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS We had 893 stockholders of record including individual participants in security position listings and 5,350,637 shares of common stock, par value of $0.50 per share, the only authorized class of common stock, outstanding as of March 13, 2002. Our common stock trades under the symbol "VBNJ." The table below presents the high and low prices reported for our Common Stock and dividends declared for the periods indicated. The range of high and low prices is based on trade prices reported on The NASDAQ Stock Market. On December 31, 2001, the closing price of a share of our Common Stock on The NASDAQ Stock Market was $ 26.75. All prices have been restated to take into consideration stock splits and stock dividends.

-23- ITEM 6. SELECTED FINANCIAL DATA The information called for by this item is filed at Exhibit 13 to this report and is incorporated in its entirety by reference under this Item 6. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information called for by this item is filed at Exhibit 13 to this report and is incorporated in its entirety by reference under this Item 7. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information called for by this item is filed at Exhibit 13 to this report and is incorporated in its entirety by reference under this Item 7A. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Our consolidated financial statements and notes to these statements are filed at Exhibit 13 to this report and are incorporated in their entirety by reference under this Item 8. Our supplementary data is filed at Exhibit 13 to this report and is incorporated in its entirety by reference under this Item 8. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On August 1, 2000, we were notified that Rudolph, Palitz LLC had merged with McGladrey & Pullen, LLP and that Rudolph, Palitz LLC would no longer be the auditor for the registrant. McGladrey & Pullen, LLP was appointed as the new auditor. The auditor's reports from Rudolph, Palitz LLC for the year prior to August 1, 2000 did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles. The decision to engage McGladrey & Pullen, LLP was not approved by the Board of Directors. During the two most recent fiscal years and the subsequent interim period preceding the change, there have been no disagreements with Rudolph, Palitz LLC or McGladrey & Pullen, LLP on any matter of accounting principle or practices, financial statement disclosure, or auditing scope or procedure. PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT DIRECTORS At February 28, 2002, we had ten directors. Our directors are divided into three classes: three directors are in Class A; four directors are in Class B; and three directors are in Class C. Each director holds office for a three-year term. The terms of the classes are staggered, so that the term of office of one class expires each year. -24- The following information includes the age of each director as of the date of this report. -------------------------------------------------------------------------------- CLASS A DIRECTORS WHOSE TERM EXPIRES IN 2002 BARBARA HARDING, 55 Director of Vista since 1988; director of Phillipsburg National from 1985 to August 2000; and director of Twin Rivers from 1990 to August 2000. Director of Vista Bank from August 2000 to the present. Chief Executive Officer of Phillipsburg National from 1985 to 1997. Current President and Chief Executive Officer of Vista and current Chairperson of the Board of Directors, President and Chief Executive Officer of Vista Bank. MARK A. REDA, 50 Director of Vista since 1988 and director of Phillipsburg National from 1987 to August 2000. Vice President of Lou Reda, Inc., a vendor of office furniture. Director of Vista Bank from August 2000 to the present. J. MARSHALL WOLFF, 55 Director of Vista since 1998 and director of Twin Rivers from 1990 to August 2000. Director of Vista Bank from August 2000 to the present. President of Kressler, Wolff & Miller, Inc., an independent insurance agency. -------------------------------------------------------------------------------- CLASS B DIRECTORS WHOSE TERM EXPIRES IN 2003 HAROLD J. CURRY, 70 Director of Vista since 1988; director of Phillipsburg National from 1978 to August 2000; and director of Twin Rivers from 1990 to August 2000. Director of Vista Bank from August 2000 to the present. Current Chairman of the Board of Directors of Vista. Attorney-at-law. DALE F. FALCINELLI, 53 Director of Vista since 1993 and director of Twin Rivers from 1990 to August 2000. Director of Vista Bank from August 2000 to the present. Principal in D.F. Falcinelli, Inc., a management consulting company. BARRY L. HAJDU, 53 Director of Vista since 1997 and director of Phillipsburg National and Twin Rivers from 1997 to August 2000. Director of Vista Bank from August 2000 to the present. President of Hajdu Construction, Inc., building contractors. MARC S. WINKLER, 45 Director of Vista from 1990 and director of Twin Rivers from 1990 to August 2000. Director of Vista Bank from August 2000 to the present. Current Executive Vice President of Vista; President and Chief Executive Officer of Twin Rivers since 1996; President of Twin Rivers from 1990 to 1996. Current Senior Executive Vice President of Vista Bank. -------------------------------------------------------------------------------- CLASS C DIRECTORS WHOSE TERM EXPIRES IN 2004 RICHARD A. CLINE, 68 Director of Vista since 1988; director of Phillipsburg National from 1979 to August 2000; and director of Twin Rivers from 1990 to August 2000. Director of Vista Bank from August 2000 to the present. Current Vice-Chairman of the Board of Directors of Vista. Retired. JAMES T. FINEGAN, JR., 42 Director of Vista since 1995 and director of Phillipsburg National from 1993 to August 2000. Director of Vista Bank from August 2000 to the present. Ophthalmologist. -25- DAVID L. HENSLEY, 55 Director of Vista since 1988; director of Phillipsburg National from 1985 to August 2000; and director of Twin Rivers from 1990 to August 2000. Director of Vista Bank from August 2000 to the present. Current Executive Vice President of Vista. President and Chief Executive Officer of Phillipsburg National from 1997 to August 2000. President of Phillipsburg National from 1990 to 1997. Chief Operations Officer at Phillipsburg National from 1985 to 1997. Current Senior Executive Vice President of Vista Bank. -------------------------------------------------------------------------------- BOARD OF DIRECTORS' COMPENSATION DIRECTORS' FEES Directors' fees, paid only to directors who are not Vista Bank employees, are as follows: Fee for each Board of Directors' meeting attended.......... $ 500 Fee for each committee meeting attended.................... $ 200 Annual retainer fee paid to each director.................. $5,000 Directors received in the aggregate in 2001 $105,050 in fees. PRINCIPAL OFFICERS Our principal officers are appointed by the Board of Directors and serve at the will of the Board of Directors, subject to certain change in control agreements discussed later in this report. The following information is presented for our principal officers: ------------------------------------ ------------- ---------------- ---------- HELD SINCE EMPLOYEE SINCE NAME & POSITION AGE ------------------------------------ ------------- ---------------- ---------- Harold J. Curry Chairman of the Board 1998(1) (2) 70 ------------------------------------ ------------- ---------------- ---------- Barbara Harding President and CEO 1988 1965 55 ------------------------------------ ------------- ---------------- ---------- David L. Hensley Executive Vice President 1988 1983 55 ------------------------------------ ------------- ---------------- ---------- Marc S. Winkler Executive Vice President 1988 1986 45 ------------------------------------ ------------- ---------------- ---------- William F. Keefe Executive Vice President and Chief 1993 1989 43 Financial Officer ------------------------------------ ------------- ---------------- ---------- (1) Prior to his appointment as Chairman in 1998, Mr. Curry served as a Vice Chairman and a director of Vista Bancorp, Inc. (2) Not an employee of Vista or Vista Bank. COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934 Executive officers and directors and "beneficial owners" of more than ten percent of the Common Stock must file initial reports of ownership and reports of changes in ownership with the SEC and The NASDAQ Stock Market pursuant to Section 16(a). We have reviewed the reports and written representations from the executive officers and directors. Based on this review, Vista believes that all filing requirements were met during 2001. -26- ITEM 11. EXECUTIVE COMPENSATION THIS SECTION CONTAINS CHARTS THAT SHOW THE AMOUNT OF COMPENSATION EARNED BY OUR EXECUTIVE OFFICERS WHOSE SALARY AND BONUS EXCEEDED $100,000 FOR 2001. IT ALSO CONTAINS THE PERFORMANCE GRAPH COMPARING VISTA'S PERFORMANCE RELATIVE TO ITS PEER GROUP AND THE REPORT OF OUR EXECUTIVE COMMITTEE EXPLAINING THE COMPENSATION PHILOSOPHY FOR OUR MOST HIGHLY PAID OFFICERS. SUMMARY COMPENSATION TABLE

(1) INCLUDES THE CASH BONUS AWARD UNDER THE EMPLOYEE INCENTIVE PLAN. OF THE TOTAL BONUS PAID TO MRS. HARDING IN 2001, $85,636 REPRESENTS THE ANNUAL PERFORMANCE PAYMENT FOR 2000 WITH THE BALANCE REPRESENTING THE ANNUAL PERFORMANCE BONUS PAYMENT FOR 2001. (2) INCLUDES DIRECTORS' FEES; LIFE, MEDICAL AND DISABILITY INSURANCE PREMIUMS; 401(K) MATCHING CONTRIBUTIONS; AUTOMOBILE USE AND SOCIAL CLUB DUES. (3) INCLUDES OPTION GRANTS UNDER THE 1998 STOCK COMPENSATION PLAN. UPON A "CHANGE IN CONTROL" AS DEFINED IN THE SEVERANCE AGREEMENTS, OPTIONS BECOME IMMEDIATELY AND FULLY EXERCISABLE. (4) REPRESENTS THE DOLLAR VALUE OF VISTA COMMON STOCK AWARDED UNDER THE EMPLOYEE INCENTIVE PLAN. (5) REPRESENTS REPORTABLE INCOME DERIVED FROM THE SALE OF STOCK OPTIONS. SEVERANCE AGREEMENTS Vista entered into severance agreements with its key executive officers. The executive officers who entered into these agreements were: Barbara Harding - President and Chief Executive Officer David L. Hensley - Executive Vice President Marc S. Winkler - Executive Vice President William F. Keefe - Executive Vice President and Chief Financial Officer Through the merger, United National Bancorp has offered Messrs. Hensley and Keefe positions that are a diminution in the circumstances of their current employment at Vista. Mrs. Harding and Mr. Winkler will not be employees of United after the completion of the merger. These employment changes constitute a "constructive termination" after a change in control of Vista as that term is defined in these severance agreements. Therefore, these agreements provide that each executive shall receive a lump sum payment equal to the employee's base compensation as defined under the agreements if he or she has been constructively terminated following a change of control. The amounts of these lump sum payments are determined by multiplying the following number of months by the executive's base salary at the Effective Time of the merger. Change in Control NAME SEVERANCE (# OF MONTHS) ---- ----------------------- Barbara Harding 36 David L. Hensley 24 Marc S. Winkler 24 -27- William F. Keefe 24 In addition to this severance payment, an executive who is constructively terminated is also entitled to all salary through the termination date; all accrued vacation pay; continued family health coverage (24 months for Messrs. Hensley, Winkler and Keefe, and 36 months for Mrs. Harding) after termination; all distributions and vesting rights under applicable retirement plans; right to exercise any vested or unvested stock options; and vesting of any unvested stock grants under the ROE Plan, as the applicable case may be. VISTA SEVERANCE PAY PLAN Vista has a severance policy for its employees who do not have a severance agreement and lose their jobs through no fault of their own as a result of the proposed merger. An employee who terminates employment for Good Reason within 12 months following the completion date of the merger is eligible to receive a severance benefit under this plan. Good Reason means: a decrease in the base salary of the employee after the completion of the merger; or a required relocation of the employee's place of employment to a place that is more than 50 miles from the employee's place of employment immediately before the completion of the merger or from a place that was agreed to when the employee accepted the position with United. The amount of severance will be paid in a lump sum and is based on job level and years of service. The maximum amount of severance is 104 weeks of salary under this severance pay plan. EXECUTIVE COMMITTEE REPORT ON EXECUTIVE COMPENSATION Executive compensation for the officers of Vista and Vista Bank is primarily determined by the Executive Committee of Vista's Board of Directors. Salaries and bonuses for the executive officers are reviewed annually. All executive compensation is paid by the respective subsidiary bank to the applicable executive. COMPENSATION PHILOSOPHY Vista's executive compensation philosophy is designed to attract, retain, and motivate highly qualified executives in line with three central themes: alignment, accountability, and attraction. o Alignment with the long-term interests of our stockholders; o Accountability for results by linking the executive's compensation to Vista's financial performance and individual performance; and o Attraction, motivation and retention of key executives. The Executive Committee annually conducts a full review of the performance of Vista and its executives in determining compensation levels. For 2001, the Executive Committee considered various qualitative and quantitative indicators of Vista and individual performance in determining the level of compensation for Vista's Chief Executive Officer and its other executive officers. The review included an evaluation of Vista's performance both on a short- and long-term basis. This review included an analysis of quantitative measures, such as growth in earnings, earnings per share, and Return on Equity. The Executive Committee considered also qualitative measures such as leadership, experience, strategic direction, community representation and social responsibility. The Executive Committee has been sensitive to management's maintaining a balance between actions that foster long-term value creation and short-term performance. In addition, the Executive Committee evaluates total executive compensation in light of the operational and financial performance and compensation practices of the commercial banking industry in the Mid-Atlantic region. Depending on Vista's performance and individual performance, the Executive Committee determines appropriate base salary and annual bonuses. However, the Compensation Committee determines the award of stock options for Vista's executives. In 2001, the Executive and Compensation Committees did not apply any specific quantitative formulae in arriving at their respective compensation decisions on base salary. -28- COMPONENTS OF EXECUTIVE COMPENSATION BASE SALARY Base salaries are reviewed each year and generally adjusted relative to individual performance and competitive salaries with the commercial banking industry in the Mid-Atlantic region. Actual salaries will continue to be set according to the scope of the responsibilities of each executive officer's position. 1998 STOCK COMPENSATION PLAN The Compensation Committee made no grants under this plan in 2001. Information on these grants is set forth in the chart "Aggregated Option Exercises in 2001 and Year-End Option Values." The Compensation Committee believes that these stock options align the interests of the executives with those of the stockholders by encouraging management to focus on total stockholder return and providing them an opportunity to share more directly in the creation of Vista value. Submitted By The Members Of The Executive Committee Richard A. Cline Barry Hajdu Harold J. Curry Mark A. Reda AGGREGATED OPTION EXERCISES IN 2001 AND YEAR-END OPTION VALUES (AS OF DECEMBER 31, 2001)(1)

(1) ALL SHARE NUMBERS IN THE TABLE HAVE BEEN ADJUSTED TO REFLECT STOCK DIVIDENDS PAID FROM 1998 THROUGH 2001. (2) CLOSING PRICE OF VISTA COMMON STOCK ON DECEMBER 31, 2001 WAS $26.75. ESTIMATED RETIREMENT BENEFITS Vista maintains a defined benefit pension plan covering all employees. Benefits under the plan are based on a "Cash Balance" type formula under which hypothetical accounts are maintained for each employee. The initial amount of this account was the actuarial present value of pension benefits earned under a prior formula. In subsequent years, this hypothetical account is increased by an annual addition based on the employee's salary and by interest. At retirement, the amount in this hypothetical account will be converted to the actuarially equivalent monthly income. Estimated annual benefits payable upon retirement at normal retirement age (age 65) for each named executive are as follows: Barbara Harding $146,329 David L. Hensley $ 78,895 Marc S. Winkler $140,236 William F. Keefe $121,609 These estimates are based on the assumption that base salaries will increase at an annual rate of 5% and assumes that no bonuses will be paid after 2001; the Social Security Taxable Wage Base will increase 5% per year; the federal -29- limit on maximum compensation will grow at a ratio of 3% per year; and the maximum limit on plan benefits will increase such that it will not limit benefits for these employees. Vista has also a 401(k) retirement savings plan. Under the 401(k) retirement savings plan, employee contributions are partially matched by Vista. Such matching becomes vested proportionally over five years of credited service. FIVE-YEAR PERFORMANCE GRAPH The following graph and table compare the cumulative total stockholder return on Vista's Common Stock during the five-year period ending on December 31, 2001, with (i) the cumulative total return on the SNL Securities Corporate Performance Index(1) for-publicly-traded banks with total assets between $500 million and $1 billion in the Middle Atlantic area(2), and, (ii) the cumulative total return for all United States stocks traded on the NASDAQ Stock Market. The comparison assumes the value of the investment in Vista Common Stock and each index was $100 on December 31, 1996, and assumes further the reinvestment of dividends into the applicable securities. The stockholder return shown on the graph and table below is not necessarily indicative of future performance. [The following was represented as a line chart in the printed material.]

(1) SNL SECURITIES IS A RESEARCH AND PUBLISHING FIRM SPECIALIZING IN THE COLLECTION AND DISSEMINATION OF DATA ON THE BANKING, THRIFT AND FINANCIAL SERVICES INDUSTRIES. (2) THE MIDDLE ATLANTIC AREA COMPRISES THE STATES OF DELAWARE, PENNSYLVANIA, MARYLAND, NEW JERSEY AND NEW YORK, THE DISTRICT OF COLUMBIA AND PUERTO RICO. -30- ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT THIS SECTION DESCRIBES HOW MUCH STOCK OUR DIRECTORS AND EXECUTIVE OFFICERS OWN. IT ALSO DESCRIBES THE PERSONS OR ENTITIES THAT OWN MORE THAN 5% OF OUR VOTING STOCK STOCK OWNED BY DIRECTORS AND EXECUTIVE OFFICERS This table indicates the number of shares of Common Stock owned by the executive officers and/or directors as of February 28, 2002. The aggregate number of shares owned by all directors and executive officers is 12.86%. Unless otherwise noted, each individual has sole voting and investment power for the shares indicated below.

(1) INCLUDES OPTIONS EXERCISABLE WITHIN 60 DAYS OF FEBRUARY 28,2002. (2) INCLUDES AMOUNTS LISTED IN THE OPTIONS COLUMN PLUS SHARES HELD (A) DIRECTLY, (B) JOINTLY WITH A SPOUSE, (C) INDIVIDUALLY BY SPOUSE, (D) BY THE TRANSFER AGENT IN THE VISTA DIVIDEND REINVESTMENT ACCOUNT, AND (E) IN VARIOUS TRUSTS AND CUSTODIAL ACCOUNTS. (3) INCLUDES 10 DIRECTORS, 3 NOMINEES FOR DIRECTOR, 6 OFFICERS - 11 PERSONS IN TOTAL. (4) INCLUDES 14,552 SHARES HELD IN VISTA'S PENSION PLAN OF WHICH MRS. HARDING AND MR. KEEFE ARE CO-TRUSTEES WHO SHARE INVESTMENT AND VOTING POWER WITH RESPECT TO THESE SHARES. MRS. HARDING AND MR. KEEFE DISCLAIM ANY BENEFICIAL OWNERSHIP INTEREST WITH RESPECT TO SHARES HELD IN THE PENSION PLAN. VOTING STOCK OWNED BY "BENEFICIAL OWNER" The following are the persons or entities known by Vista to own beneficially more than five percent of the Common Stock as of February 28, 2002.

(1) VISTA BANK'S TRUST DEPARTMENT HOLDS OR VOTES THESE SHARES IN VARIOUS FIDUCIARY CAPACITIES AND VISTA'S OFFICERS VOTE SOME OF THESE SHARES UNDER THE EMPLOYEE RETIREMENT PLAN. (2) ACCORDING TO THE SCHEDULE 13D FILED WITH VISTA, VALLEY NATIONAL BANCORP IS THE PARENT BANK HOLDING COMPANY FOR THE VALLEY NATIONAL BANK. VALLEY NATIONAL BANCORP DISCLOSED THAT IT HAD NO PLANS TO INCREASE ITS OWNERSHIP INTEREST ABOVE 9.99% OF THE COMMON STOCK OR TO EFFECT ANY MERGER, REORGANIZATION, TENDER OFFER, EXCHANGE OFFER OR ANY OTHER TYPE OF TRANSACTION INVOLVING VISTA. FURTHERMORE, VALLEY NATIONAL BANK MADE CERTAIN COMMITMENTS TO THE FEDERAL RESERVE BOARD, WHICH WERE, AMONG OTHERS, THAT WITHOUT PRIOR APPROVAL OF THE FEDERAL RESERVE BOARD, IT WOULD NOT: SEEK ANY REPRESENTATION ON THE VISTA BOARD OF DIRECTORS; EXERCISE ANY CONTROLLING INFLUENCE OVER VISTA MANAGEMENT OR POLICIES; AND SOLICIT OR PARTICIPATE IN SOLICITING PROXIES WITH RESPECT TO ANY MATTER PRESENTED TO VISTA STOCKHOLDERS. -31- ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS We encourage our directors and executive officers to have banking and financial transactions with Vista Bank. All of these transactions are made on comparable terms and with similar interest rates as those prevailing for other customers. The total consolidated loans made by Vista Bank at December 31, 2001, to our directors and officers as a group, members of their immediate families and companies in which they have a 10% or more ownership interest was $6.2 million or 10.3 % of our total consolidated capital accounts. The largest amount for all of these loans in 2001 was $6.2 million or 10.3 % of our total consolidated capital accounts. During 2001, advances and repayments on these loans were $8.8 million and $8.2 million, respectively. These loans did not involve more than the normal risk of collectibility nor did they present other unfavorable features. PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Our consolidated financial statements and notes to these statements as well as the applicable reports of the independent certified public accountants are filed at Exhibit 13 to this report and are incorporated in their entirety by reference under this Item 14(a)1. 2. All schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes to these statements. 3. The exhibits required by Item 601 of Regulation S-K are included under Item 14(c) to this report. (b) Reports on Form 8-K On November 19, 2001 we filed Form 8-K announcing that Vista Bancorp and its wholly owned subsidiary bank, Vista Bank, N.A. had entered into an Agreement and Plan of Merger with United National Bancorp and its wholly owned subsidiary bank, United Trust Bank. United National Bancorp and United Trust Bank will be the surviving entities to their respective mergers. (c) Exhibits required by Item 601 of Regulation S-K:

-32- SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. VISTA BANCORP, INC. (Issuer) By: /s/ Barbara Harding Date: March 21, 2002 --------------------------- Barbara Harding President In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Barbara Harding Date: March 21, 2002 ------------------------------- Barbara Harding President, Chief Executive Officer and Director (Chief Executive Officer) By: /s/ Richard A. Cline Date: March 21, 2002 ------------------------------- Richard A. Cline Director By: /s/ Harold J. Curry Date: March 21, 2002 ------------------------------- Harold J. Curry Director and Chairman of the Board By: /s/ Dale F. Falcinelli Date: March 21, 2002 ------------------------------- Dale F. Falcinelli Director By: /s/ James T. Finegan, Jr. Date: March 21, 2002 ------------------------------- James T. Finegan, Jr. Director -33- By: /s/ Barry L. Hajdu Date: March 21, 2002 ------------------------------- Barry L. Hajdu Director By: /s/ David L. Hensley Date: March 21, 2002 ------------------------------- David L. Hensley Director and Executive Vice President By: /s/ Mark A. Reda Date: March 21, 2002 ------------------------------- Mark A. Reda Director By: /s/ Marc S. Winkler Date: March 21, 2002 ------------------------------- Marc S. Winkler Director and Executive Vice President By: /s/ J. Marshall Wolff Date: March 21, 2002 ------------------------------- J. Marshall Wolff Director By: /s/ William F. Keefe Date: March 21, 2002 ------------------------------- William F. Keefe Executive Vice President and Chief Financial Officer (Chief Financial and Accounting Officer) -34- INDEX TO EXHIBITS ITEM NUMBER DESCRIPTION PAGE 13 Portions of the Annual Report to Stockholders for Fiscal Year Ended December 31, 2001.............................. 36 21 List of Subsidiaries of the Company..................... 86 23 Consent of McGladrey & Pullen, LLP Certified Public Accountants......................... 87 99 SEC Guide 3 Financial Information........................ 89 -35-

VISTA BANCORP INC 10-K