Critical Accounting Policies

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

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

Results of Operations

OVERVIEW

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

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

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

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

Net Interest Income

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

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

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

The following summarizes net interest margin information:

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

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

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

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

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

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

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

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

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

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

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

Provision for Loan Losses

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

Other Non-Interest Income

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

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

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

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

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

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

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

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

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

Other Non-Interest Expense

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

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

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

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

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

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

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

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

Income Taxes

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

Financial Condition

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

Cash and Cash Equivalents:

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

Mortgage Loans Held for Sale

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